Felix Salmon

HuffPo Live: The Fox News of the knee-jerk left?

Felix Salmon
Aug 13, 2012 22:04 UTC

Huffington Post Live launched today. Don’t call it streaming video: “it’s really a platform for engagement,” in the words of its founding editor, Roy Sekoff. What does that mean in practice? Let’s play Celebrity Google Hangouts! Here’s your host, Josh Zepps. Take it away, Josh:

John Cusack, you brought this to our attention. What struck you about it? It’s one of those ideas that sounds just crazy enough to work?

Amazingly, they’re talking about Mortgage Resolution Partners, and its plan to make lots of money by buying up performing mortgages on the cheap using eminent domain. I wrote about MRP here, and here, and here; suffice to say, it’s a bad idea. But! Let’s see what John Cusack thinks!

Yeah, I just thought it was a, seemed to be a question of um, you know, um, fundamental fairness, um, and, I, these, these, er gentlemen, um, John, um, Vlahoplus, who’s, who’s a Rhodes Scholar, and who’s studied this stuff and worked in the financial industries, and has a long history of working with that, and Kevin McCabe, who is, is working with the, er, is a founder of the Community Partnerships, which is an independent group which is working with Mortgage Resolution Partners, er, gave us a view from 30,000 feet, and, um, they really feel like this eminent domain thing can work, and kind of reset the markets.

There’s actually a certain amount of timeliness to this subject: Joe Stiglitz and Mark Zandi have one of those bipartisan op-eds in the NYT today, praising Jeff Merkley’s excellent proposal to help underwater homeowners. That proposal could scale to hundreds of billions of dollars and make a real dent in the problem; it also wouldn’t exclude you if, say, your mortgage is owned by Frannie, or a bank.

But over the course of more than 18 minutes, Merkley and his proposal are never mentioned. Instead, we have that guy from Hot Tub Time Machine explaining that “I would imagine from our discussions that the opposition is a very narrow group of people, as opposed to the very broad public good this would do… All the smart people that I talk to, and believe me I’m no expert even though I have a big mouth, tell me that this is in everybody’s best interest except a very narrow group of people”.

To which Arianna Huffington can only respond: “That’s what it comes down to, a very narrow group of people versus the public interest”.

In reality I’m far from alone in being a big supporter of principal reductions, while opposing this particular idea, which seems to benefit Mortgage Resolution Partners first and everybody else only as an afterthought. But HuffPo didn’t invite anybody like me along for their chat: instead, they invited John Vlahoplus, the chief strategy officer at… Mortgage Resolution Partners. And he was allowed to get away with saying that he has “the overwhelming support of communities and of homeowners” and that the only opponents to his scheme are “a very narrow group of companies who’ve bought these securities very cheaply, and they’ve been fighting really hard, together with Sifma and the American Securitization Forum, to stop this. And they’re intimidating local communities. They’re threatening to red-line local communities”.

This kind of uncontested demagoguery is decidedly unpleasant, and feels as though HuffPo has decided it wants to be the Fox News of the knee-jerk left. Or, as Cusack might put it, “What’s beautiful about this” is that “it’s a real grassroots thing”. It’s a rare — and quite scary — window, directly into the psyche of how HuffPo thinks. Let’s just hope they don’t decide to start covering autism the same way they’re covering underwater mortgages.


Nice try, but HuffPost is completely off the wall. No serious person reads it or contributes to it, but if you want to try and equate them with Fox News, go right ahead. No one really believes that.

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The art of earnings reports

Felix Salmon
Aug 13, 2012 18:14 UTC

Arthur Brisbane, the NYT public editor, has a characteristically skittish column on earnings reports. He quotes lots of journalists (Dean Starkman! Gretchen Morgenson! Larry Ingrassia! Jim Cramer!), and ends with advice worthy of Polonius:

Always be sure to meet company spin with appropriate skepticism. If nontraditional profit metrics are involved, bring the reporting back around to good old-fashioned net income. If a company wants to strip out adverse factors, be sure to strip them back in.

And don’t get swept away by the Kabuki theater of gerrymandered expectations.

This is what you get when long-in-the-tooth journalists with no business-desk experience try to parachute in and tell financial types how to do their job: “On the assumption that a lot of Times readers are also investors,” writes Brisbane, “I wondered how earnings articles could be tailored to help readers with investment decisions.”

Let’s dispatch that one quickly: there are things which help investors with their investment decisions. And there are NYT articles about corporate earnings. And there is no reason at all for the latter to attempt to be the former.

Brisbane does, dimly, understand that earnings reports are problematic, from a journalistic perspective. But he doesn’t understand the fundamental tension that explains why they’re so difficult, which is that the news value of earnings reports is entirely orthogonal to the value that the market finds in them.

As far as the market is concerned, earnings reports are all about short-term tactical positioning. Everybody’s trying to position themselves against what they think the earnings report will say, and how they think the market will react. At its simplest this is just a question of whether the company will “beat expectations” or not, but there are second-order and third-order effects as well, and much of the smart money is doing all manner of highly-complex trading in the options market rather than the cash market. As a result, the reaction of the share price to the earnings statement, unless it’s huge, generally tells you almost nothing about the substance of that statement.

The sensible reaction to such a world, if you’re a journalist, is Larry Ingrassia’s: to ignore nearly all earnings reports, unless there’s real news value in them or unless there’s broad public fascination with the company and its fortunes. And when you do cover a company’s earnings, the sensible thing to do is to try to use them as a window onto a broader story, rather than as a significant news event in and of themselves.

Doing so naturally opens yourself up to the kind of gotchas that Brisbane opens his column with. He seems to be shocked that different news organizations might have different takes on the same earnings report, and concludes that such stories are nothing more than “a Rorschach test for reporters: what they see is what they think they see”. That’s incredibly unfair: the reality is that precisely because the news value of most earnings reports is so slim, smart news outlets treat them as a way to provide a broader perspective on the company. And there are as many ways of doing that as there are reporters.

On the other hand, the financial press doesn’t have that luxury — if you’re working for a financial newswire, or for the Wall Street Journal, then you have to be focused on the stock at least as much as you are on the company. As a result, you have no choice but to talk about market expectations. What’s more, you have to go into some detail about the actual earnings, and you have to write about whatever metrics the market is paying most attention to. Sometimes, that will be “good old-fashioned net income”. Often, it won’t be.

If you own stock in a fast-growing company in a young market, for instance, you would probably be rather worried if that company started posting outsize profits, rather than reinvesting them in growth. And right now, when companies are sitting on enormous cash piles and the last thing they need is even bigger cash piles, a large net profit is in many ways a sign that the company in question has reached the limit of what it can do, and has no real ability to reinvest capital or to boost future growth.

Dell, for instance, had net income of $635 million in the last quarter, and $3.2 billion over the past 12 months; that’s good for a market capitalization of just over $20 billion. Amazon, by contrast, had net income of $7 million in the last quarter, and $377 million over the past 12 months: a tiny fraction of the kind of profit that Dell is making. And yet it has a market cap of more than $100 billion.

So let’s not pretend that the One True Earnings Report is the one that concentrates on net income as the most important indicator every quarter. Especially when you have things like large one-off write-downs, net income becomes downright misleading unless its components are properly explained. And let’s not pretend, too, that there’s some unique truth underlying every earnings report, and that if journalists were only perspicacious enough, they’d all write exactly the same thing. Your audience matters: are you writing for traders, or are you writing for general-news consumers? And if it’s the latter, then in many ways the faster you get away from the earnings and move onto something more interesting, the better.

As for general readers, there’s really no point in reading the typical earnings report in a financial publication. If you’re a trader, and you don’t already know what happened with the earnings, then, well, you shouldn’t be a trader. And if you’re not a trader, these reports are not for you. If, on the other hand, you find yourself reading about an interesting company’s earnings, somewhere, and the story grabs your attention, then there might well be something worth reading there. But if there is, then the chances are that the worthwhile information is informed mostly by reporting that preceded the release of the earnings. They’re just a news hook, really.


I used to work on the earnings reports of companies like 3M. They are mostly a joke and tortured beyond much correlation with the truth. Multi-page sections which could be summarized by the sentence “if we sell less stuff next year we will make less money, and likely we will sell less stuff”. A desperate desire to obscure obscure obscure.

Just invest in some index funds and leave the earnings report to the full-time professionals and the suckers (the overlap of which is quite extensive).

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Dubious statistics of the day, cybercrime edition

Felix Salmon
Aug 7, 2012 21:40 UTC

I feel for Peter Maass and Megha Rajagopalan of ProPublica, who have spent 3,700 words and some enormous amount of time trying to track down the source of dubious cybercrime statistics. I went through something similar in 2005, looking at counterfeiting statistics: I can attest to how frustrating and thankless it is trying to follow footnote after footnote in a futile attempt to find something substantive amidst the exaggerated rhetoric.

The short story here: the US government loves to say that the cost of cybercrime in the US is $250 billion per year, while the cost of cybercrime globally is $1 trillion per year. The government loves to say that because it’s in the business of fighting cybercrime, and it loves to feel important. But in reality, those figures are more or less picked out of thin air, and have very little in the way of solid scientific basis. What’s more, they’re all sourced from for-profit companies with a lot of skin in the game: Symantec and McAfee, manufacturers of anti-cybercrime software.

The most interesting thing, to me, about the ProPublica report is that the $1 trillion number ostensibly comes from a scientific survey, but in fact comes from a press release which accompanied that survey. The survey itself never said anything of the sort. In that, it’s just like the $5 trillion which hedge funds are supposed to be managing in five years’ time. (Thanks, Citigroup, for inventing that figure and placing it in the WSJ and elsewhere.)

Is this something they teach at PR school? Commission a scholarly report, and then distribute it with a press release featuring eye-popping assertions to be found nowhere in the report? I suspect that it happens much more than most journalists would like to admit.

What’s worse, once public institutions have officially cited these bogus stats, they feel that it would be shameful to ever distance themselves from them — hence the unedifying responses in the ProPublica piece from US spokespeople, which basically amount to “hey, it’s not our job to check facts, if McAfee puts something in a press release, that’s good enough for us”.

The reason that PR types do this, of course, is that it works. They know that most journalists are much more comfortable working off a press release than putting the work into reading and understanding a long report; they also know that even if most journalists do read the report and steer clear of the story, that doesn’t matter so long as some journalists wind up falling for the bogus numbers. And most importantly, they know that they’ll never get punished in any way for putting out false or misleading information: while journalists are expected to check facts, PR people are shameless.

Which means that the conclusion to my 2005 piece is as true today as it was back then: if you ever see seemingly authoritative statistics being bandied around by journalists or politicians, always bear in mind that there’s a good chance they’re utter bullshit. Especially if they’re particularly striking, or don’t pass the smell test.

Jonah Lehrer, TED, and the narrative dark arts

Felix Salmon
Aug 3, 2012 19:03 UTC

One of the most interesting takes on l’affaire Jonah Lehrer comes in a book review which was almost certainly written before any of the latest revelations: Evgeny Morozov’s hilarious and masterful dismantling of Parag Khanna in particular and the whole TED mindset in general. Whatever else you do this weekend, make sure to read it: you won’t be sorry. But this part is directly relevant to Lehrer:

Today TED is an insatiable kingpin of international meme laundering—a place where ideas, regardless of their quality, go to seek celebrity, to live in the form of videos, tweets, and now e-books. In the world of TED—or, to use their argot, in the TED “ecosystem”—books become talks, talks become memes, memes become projects, projects become talks, talks become books—and so it goes ad infinitum in the sizzling Stakhanovite cycle of memetics, until any shade of depth or nuance disappears into the virtual void. Richard Dawkins, the father of memetics, should be very proud. Perhaps he can explain how “ideas worth spreading” become “ideas no footnotes can support.”

The TED “ecosystem” — the scare quotes are unavoidable — has what Nathan Heller, in his New Yorker profile, called a “closely governed editorial process”:

The conference’s “curators” feel out a speaker’s interests, looking for material that’s new and counterintuitive. They think about form. A TED talk tends to follow one of several narrative arcs (some have three acts, others are cast as detective stories, others are polemics)…

The real work of the curators, though, often comes down to emotional shading. When Cain first drafted her talk, it was thick with statistics and case-making data. Looking at other TED lectures, though, she decided to replace some of her data points with stories—an inclination that the conference’s curators pushed even further. A moving narrative about her grandfather’s bookish introversion now concluded the lecture. “I’ve had to stifle my appetite for nuance,” she said, about the lost statistics.

One of the less-remarked aspects of TED is that although it popularizes science, it features very few of the people whose job it is to popularize science: science journalists. Although the beneficient spirit of Malcom Gladwell hovers invisibly over most of the proceedings, these talks are far removed from any culture of journalistic ethics. The scientists don’t consider what they do at TED to be science, and the ones who make it onto the TED Talks site are the ones most willing to let TED’s curators guide them to a trite and facile narrative nirvana. They often don’t need much guiding, these days: the TED formula, perfectly celebrated/skewered here, is at this point ingrained in the mind of almost anybody who wants to give a talk there.

And here’s the thing: for all that Jonah Lehrer ultimately wound up blogging for the New Yorker, he has always been a creature of TED much more than he has been a creature of journalism.* Check out Seth Mnookin’s post, today, on Jonah Lehrer’s missing compass: the way that Lehrer remixed facts in service of narrative is very TED. Mnookin says that Lehrer had “the arrogance to believe that he has the right to rejigger reality to make things a little punchier, or a little neater”. A journalist would call that arrogance — would call it, indeed, the action of a man with no moral compass. On the other hand, a TED curator, or a monologuist, might see things very differently.

Which is something that Morozov doesn’t touch on in his review: that TED-think isn’t merely vapid, it’s downright dangerous in the way that it devalues intellectual rigor at the expense of tricksy emotional and narrative devices. TED is a hugely successful franchise; its stars, like Jonah Lehrer, are going to continue to percolate into the world of journalism. And when they get there, they’ll be deeply versed in the dark arts of manipulating facts in order to create something perfectly self-contained and compelling. Does any editor out there want to take it upon herself to try to unteach such arts, when bringing on a hot new star? I didn’t think so.

I don’t know how to solve this problem. TED isn’t going away: indeed, it’s so successful that it is spawning dozens of competitors, even as many publications, including the New Yorker as well as Wired, the NYT Magazine, the Atlantic, and many others, move aggressively into the “ideas” space. The cross-pollination between the conferences and the publications will continue, as will everybody’s desire to draw as big an audience as possible. Which says to me that Jonah Lehrer will not be the last person to trip up in this manner. In fact, he might turn out to be one of the first.

*Update: Clay Shirky informs me that Jonah Lehrer has never actually given a TED talk.

Update 2: A lot of people seem to think that it matters, for the purposes of this post, whether Lehrer has actually given a talk at TED (as opposed to PopTech, where he has spoken, or any of the other TED clones out there). Certainly the post would be a bit more elegant if Lehrer had been a genuine TED star, with millions of views for his TED talk. But I absolutely stand by my assertion that he’s a creature of TED, and that his writing is decidedly TED-esque in its prioritization of narratives over niceties.



You write: “One of the less-remarked aspects of TED is that although it popularizes science, it features very few of the people whose job it is to popularize science: science journalists…”

… but you seemingly don’t realize that the last TED Book “Deep Water,” which was released just last week, is a science book (the journey to discover the rate of polar ice melt) by a science journalist (Daniel Grossman, of National Geographic, BBC, Weekend Edition, The World, etc.).

And then you decry the lack of ‘intellectual rigor’ at TED and other conferences. Perhaps you may want to begin examining that issue a little closer to your own desk.

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Bloomberg with attitude

Felix Salmon
Jul 26, 2012 21:39 UTC

Bloomberg News has been run, since inception, along the lines laid out very clearly by its editor-in-chief, Matt Winkler, in The Bloomberg Way. But you don’t need to buy a copy of the book to know what the Bloomberg Way means: if you spend any time at all reading Bloomberg articles, you’ll know exactly how it feels to read them.

Of late, however, Bloomberg has started injecting some serious attitude into various parts of the empire which are close to — if not strictly part of — the central news organization. Look at Richard Turley’s covers for Bloomberg Businessweek, for instance: “Most of my work involves trying to turn the capitalist system against itself,” he told AdAge, “but try not to tell anyone that”. Or look at @bobivry’s balls-out Twitter feed (sample tweet, from yesterday: “Sandy Weill just made me throw up.”)

Now a Bloomberg View columnist, Bill Cohan, has delivered an entire column devoted to fisking Loren Feldman’s long NYT piece about the court case currently pending against Goldman Sachs brought by James and Janet Baker, a couple who sold their company for $580 million in worthless stock.

I remember thinking, when I read Feldman’s story, that it felt like it wasn’t telling the whole story. For one thing, how was it that this lawsuit has managed to drag on for over a decade? (Although Feldman never actually says when the suit was filed, so that bit was always a bit fuzzy.) And secondly, what kind of M&A banker blithely goes on vacation when his client is having a hugely important meeting with the acquiring company, saying that he would be unable to call in “and that it was pointless to send anybody else from Goldman because there wasn’t time to catch up on the deal”?

Cohan doesn’t answer either of those questions, but he does reveal other germane information which Feldman either missed or chose to ignore. For instance: Goldman advised the Bakers consider hedging the stock they received in the transaction; the Bakers rejected that advice. And: the Bakers’ suit against Goldman is just one of many different lawsuits they have brought against more than 30 separate defendants, including KPMG and SG Cowen; so far those suits have resulted in the Bakers being awarded more than $70 million. And: in those suits, at least according to Goldman, the Bakers swore under oath that their company had done due diligence on its acquirer; that the due diligence was not Goldman’s job; and that in any case “no amount of due diligence could have detected the fraud”.

Cohan concludes by describing Feldman’s story as a “one-sided potshot” — and I have to say I love it when I see that kind of say-what-you-mean language coming from any part of the Bloomberg empire. Winkler is notoriously allergic to ad hominem attacks, and media organizations in general tend to be very shy when it comes to criticizing each other, especially outside clearly-labeled media-criticism ghettoes. No one wants to throw the first stone.

The fact is, however, that Cohan’s column does a good job of placing Feldman’s story in a bigger perspective. I don’t sign on to Cohan’s opinions, either in this piece or elsewhere: I think his sympathy with Goldman’s argument that it was only advising the company and not its shareholders, for instance, is misplaced. And while I’m OK with opening sentences which liken Goldman Sachs to a deep-sea cephalopod, Cohan’s decision to compare the company to Jerry Sandusky seems unnecessarily vile.

But when it comes to the substance of Cohan’s column, I think he makes his case quite well: it can be dangerous to take NYT stories about Goldman Sachs at face value. I only wish that Feldman felt free to reply, and that we could have some real iterative journalism here about what really went on in this deal.

Most of all, though, I wish that one of Feldman and Cohan had seen fit to upload some or all of the legal source materials they reviewed. The NYT’s document viewer is great for such things, and Bloomberg is entirely capable of publishing primary documents too. Here’s the one place where Feldman and Cohan are saying exactly the same thing: Feldman talks about how his account “is based on a trove of legal filings”, and Cohan talks about how his piece is based on vague “court documents I reviewed”. Neither links to any of those documents, and neither gives much of a hint of what exactly those documents are, or where they might be found. It’s classic “trust me, I’m a journalist” reporting, and it’s offputting in both instances.

By all means tell us what certain documents are saying. But when you do so, show us those documents at the same time, so that if we’re so inclined, we can judge for ourselves. At the very least, if you don’t upload or point to the documents, explain why you’re failing to do so. Right now, we know that Feldman looked at a bunch of documents and came away thinking very little of Goldman; we also know that Cohan looked at a bunch of documents and came away much more sympathetic to the bank. But we don’t even know whether they were even looking at the same documents or not. And neither is letting us draw our own conclusions.

So while Bloomberg’s move into content-with-attitude is entirely welcome, I’d love to see it do more when it comes to linking to primary documents. The NYT, too, for that matter. Both of them are good at such things sometimes: Jonathan Weil, in particular, is great. But it doesn’t seem to have sunk in to the corporate DNA yet.

Update: Apparently Cohan did attach two documents to his column, but they initially showed up only on the Bloomberg terminal. They’re up online now; let’s hope for more!


The NYT articlde was incomplete in that it didn’t provide links to documents or why they are not available…true, but it was a story woven to make Goldman look bad and remind us that Dragon was a pioneer in speech recognition that Suri is based on… yet now is defunct … and so it should!

Goldman may have legal standing to say only “Dragon” can sue and not the Bakers as it is now defunct. Goldman should not be able to stand on its comments that they followed it through to completion so, job well done and win the case without the fallout “due” on their reputation!

At an earlier time,in preliminary due diligence when seeking to invest themselves, Goldman spent very little time and trouble before considering L&H as a company they themselves would NOT invest in:

“Whenever we invest, we always want to talk to customers,” Luca Velussi, a Goldman analyst who worked on Project Sermon, later testified. Based on what Project Sermon’s team leader, Ramez Sousou, termed “preliminary” due diligence, Goldman declined to invest in L.& H.

Although you mention the elder of the 4 bankers going on vacation, reread it. He went on vacation TWICE during the crucial late stages of the negotiations. TWICE within a matter of weeks.

Yes realist50, “Cohan has the background to understand the role of different parties on an M&A deal, as well as the fact that quality of earnings reports are routinely commissioned even on deals much smaller than $580 million.”

If not to do due diligence in finding the right investor, exactly what was Goldman hired to do? Cohan also has the background of getting huge bonuses to do very little while promising much and sounds more as though he is defending Goldman to get hired rather than making counter points. That is a great way to get your resume out there…

It makes one wonder … whether the Goldman supervisor of the 4 banker assigned actually had anything to do with the clients being he has denied having been a part of the Dragon deal, whether the other client that had speech recognition interests might have meant there were some “other” conflicts of interest still to be determined, and who advised the UK Goldman analyst to take the call and lie about L&H to appease the Bakers when he had not been following them at all.

It makes one wonder, who sent the unsigned memo and why will no one take credit for it… was it a cryptic warning, from someone (a Greg Smith type) at Goldman who wished to remain anonymous, that Goldman knew something they didn’t and why do minutes from the meeting where the decision was made, say that Goldman bankers expressed confidence that the combination of Dragon and L.& H. would produce a market leader, when they had not done even the preliminary due diligence they had done to protect themselves?

Even though all that is pure speculation, at the very least the Baker’s lawyer is correct that “The Goldman Four were unsupervised, inexperienced, incompetent and lazy investment bankers who were put on a transaction that in the scheme of things was small potatoes for Goldman.”

So 10 years ago 5 million was a paltry sum that deserved little consideration to take to a task to “completion” (regardless of the actual outcome such as a total loss of their company and bankruptcy) how much $$$ does it take for actual competent consideration and “due diligence” now?

It also makes one wonder about $300 million Greece paid for the books to be more gently sauted after being julienned, leaving their taxpayers to fend for themselves. How much more do we not know about Goldman, after seeing “God’s work” in action?

I think Greg Smith, was being far too kind, knowing what we know about Goldman and other TBTF banks… Wall Street puts its own interests ahead of its clients and will screw anything or anyone along the way.

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Jumping to conclusions, Malcom Gladwell edition

Felix Salmon
Jul 24, 2012 21:01 UTC

Back in 2009, when Andrew Ross Sorkin wrote Too Big To Fail, Moe Tkacik picked up on one particular anecdote: that Joe Gregory, who “loved being the in-house philosopher-king” at Lehman Brothers, was prone to handing out copies of Malcom Gladwell’s Blink to employees, and “had even hired the author to lecture employees on trusting their instincts when making difficult decisions”. Then Joe Weisenthal, reading Tkacik’s post, immediately reblogged it under the very TBI headline “GUILTY: Malcolm Gladwell Caused Lehman To Fail”.

Now, in a classic case of history repeating itself, we find a new book — this time Frank Partnoy’s Waitreprising the same Gladwell-Lehman story.* Indeed, it’s in some ways the whole reason that Wait was written. Here’s Partnoy talking to Smithsonian’s Megan Gambino:

What made you want to take a closer look at the timing of decisions?

I interviewed a number of former senior executives at Lehman Brothers and discovered a remarkable story. Lehman Brothers had arranged for a decision-making class in the fall of 2005 for its senior executives. It brought four dozen executives to the Palace Hotel on Madison Avenue and brought in leading decision researchers, including Max Bazerman from Harvard and Mahzarin Banaji, a well-known psychologist. For the capstone lecture, they brought in Malcolm Gladwell, who had just published Blink, a book that speaks to the benefits of making instantaneous decisions and that Gladwell sums up as “a book about those first two seconds.” Lehman’s president Joe Gregory embraced this notion of going with your gut and deciding quickly, and he passed copies of Blink out on the trading floor.

The executives took this class and then hurriedly marched back to their headquarters and proceeded to make the worst snap decisions in the history of financial markets. I wanted to explore what was wrong with that lesson and to create something that would be the course that Wall Street should have taken and hopefully will take.

This time, it was Andrew Sullivan filling the role formerly played by Joe Weisenthal. His headline in The Daily Beast: “Did Malcolm Gladwell Cause The Recession?”

After seeing this all play out twice, I thought it was maybe time to ask Malcom Gladwell whether he caused Lehman to fail. Alternatively, did he merely cause the greatest recession in living memory? He replied:

First, Blink was not a book about the benefits of making instantaneous decisions. It was a book examining the power of instantaneous decisions–and a good half of the book (the last half) is devoted to all the ways that snap judgements can go awry. (The last two chapters, for example, are about how gut reactions caused the Diallo shooting and how gut reactions resulted in women being discriminated against in orchestras). The talk I gave to Lehman was along those lines: it was a talk, arising out of the book, about the “fragility” of gut decisions–and about how if they are to be useful they have to be defended against bias and corruption. Of the many journalists who have reported on that talk, you are the first to actually ask me what I spoke about. The others, I suppose, just made an instantaneous decision about what I must have said.

Put aside the lesson about media memes, and what you have here is a classic case of arrogance trumping knowledge. Check out the wonderful Wikipedia list of cognitive biases, and you’ll find dozens of reasons why it’s quite possibly a very bad idea to trust your gut. But people like Joe Gregory, no matter how much they know about such things, and no matter how astutely they can recognize them in others, still insist that they are very good at overcoming such biases themselves.

In reality, of course, they’re not. If you make decisions quickly, you will make bad decisions a lot of the time, no matter how many times you read Gladwell’s book. Grown-ups think about important decisions, and take time over them. That’s certainly the lesson of Portnoy’s book. But, it turns out, that’s exactly what Gladwell told Lehman, too.

Update: Portnoy emails to clarify that the Gladwell-Lehman story is not actually in Wait, although he was indeed inspired by it. He also writes:

Your last paragraph is dead on.  I’ve always described WAIT as a “friendly amendment” to BLINK, though I guess it’s inevitable that some people will misread (or not read) my book in the same way some misread Gladwell’s.


I’m expecting to see a ‘Counterparties’ entry like this –

“Malcom Gladwell makes the (rookie) mistake of showing-up in a Felix Salmon thread – Reuters”

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How not to report on the poor and the wealthy

Felix Salmon
Jul 23, 2012 18:24 UTC

The media has not exactly covered itself in glory when reporting on money-related research of late. For instance, consider Martha White’s blog post at Time.com on Friday. Here’s the headline:

Would You Pay $520 in Interest to Borrow $375? 12 Million Americans Did Last Year

White cites “a payday lending report” from Pew for her datapoint — but, unforgivably, doesn’t link to it. If she had linked to it, she might have read the report a bit more carefully: it’s clear that the average interest paid on a $375 loan is $65, not $520. The $520 figure comes from multiplying the $65 number by eight, on the grounds that the average payday borrower takes out a loan eight times per year. Which in turn means that the $520 in interest is paid on $3,000 in loans, not $375 in loans.

(Update: The vast majority of payday borrowers never take out more than one loan at a time, so most of the time, the maximum principal balance is $375. The Pew report was careful to say it was talking about eight $375 loans, which is a more accurate way of putting it than saying $3,000 in loans. But it’s doing 12 million Americans a disservice to imply that they are willingly entering into deals knowing that they will pay back $520 in interest on a single $375 loan, even if that’s how it often ends up.)

Then, over the weekend, a series of stories — starting with the Observer, and moving on to Reuters and elsewhere — started writing about the trillions of dollars sitting in offshore bank accounts. All of them use the word “hidden” or its cognates, and all of them were based on a report from the Tax Justice Network (me neither), which is very long on hyperbole. This, for instance, from the main section of the report, gives a flavor of how it reads:

The subterranean system that we are trying to measure is the economic equivalent of an astrophysical black hole… The way is hard, the work is tedious, the data mining is as mind-numbing as any day below surface at the coal face…

The assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments… In terms of tackling poverty, it is hard to imagine a more pressing global issue to address.

The report does concede, grudgingly, that in fact the governments in question don’t have net debts at all: these countries, on a sovereign level and taking into account no private assets at all, are net creditors rather than net debtors. But still we’re told that “ordinary people” are shouldering massive debts which should somehow by rights be either serviced or paid off using the wealth of these countries’ plutocrats.

The reality is that the wealth of the global super-elite does not, actually, cause poverty; nor is there any obvious way of using it to alleviate poverty. Bill Gates, for instance, the richest of the lot, is putting an absolutely enormous amount of effort into trying to use his wealth to alleviate certain pockets of poverty; the jury’s still out on whether or when he might see real success on that front.

The conceit of the report is that if all offshore wealth was instead held onshore, and if that onshore wealth produced a certain amount of income, and that if all that extra income were taxed at top marginal rates, then there would be lots of lovely money for governments to spend on making poor people rich. Or something.

But the fact is that there’s a good reason why countries tax income and not wealth: for all that I personally think that a wealth tax is a very good idea, I can’t think of any country in the world, other than the USA, which could effectively levy such a thing.* The world’s wealthy don’t pay taxes on their wealth; they never have, and they never will. And because of the way they live, in a stateless cocoon, it’s a bit silly to expect them to reinvest most or all of their wealth back into their country of origin.

If you’re extremely wealthy and you come from one of the countries on the list here — Russia, Brazil, Mexico, Venezuela, Argentina, Indonesia, Nigeria, Malaysia, Ukraine, you get the picture — then obviously you’re going to keep a huge amount of money offshore, whether you made your money in a legal or in an illicit manner. And while some of the reason might well be tax avoidance, much of it is going to be simply the fear of expropriation and/or confiscation — again, be that legal or illicit. And since your investments are going to be global, it does make sense to park your money in jurisdictions which have proven themselves good at safeguarding individual wealth, as opposed to plundering it.

The total amount of wealth in the world is not an easy number to estimate, but it’s probably somewhere in the $250 trillion range. A lot of that wealth is financial, and a lot of financial wealth is held “offshore”, whatever that means these days. This new report says that roughly $25 trillion is held offshore by the wealthy, which just means that roughly $25 trillion is held offshore: after all, poor people by definition don’t have bank accounts in the Cayman Islands. That’s an interesting datapoint, but it’s not much more than that.

What’s unhelpful and sensationalist is to lead off your press release (and therefore lots of news articles) by saying that that amount “is equivalent to the size of the United States and Japanese economies combined”. That’s just a cheap way of comparing a stock with a flow, since GDP figures don’t measure wealth at all, but rather income.

“Rich people are rich” is not much of a story, although I can see why certain people want to make it one, by reframing it in terms of inequality or tax evasion. Similarly, “poor people find it difficult to stay on top of their finances” is not news either, and there’s therefore a temptation to sex it up a bit by making it seem that people are paying more in interest than they’re borrowing in principal. But as a rule, if you see a headline about these kind of issues and the story cites a report without linking to that report, be very suspicious. There might be a lot less there than the story you’re reading would have you believe.

*Update: There are in fact six countries with a wealth tax: France, Switzerland (in certain cantons), Liechtenstein, Holland, Norway, and Italy. In none of them is it an obvious success.


Based on the averages from the Pew report, the effective interest rate is 790.83%…

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Media ethics and transparency

Felix Salmon
Jul 11, 2012 06:42 UTC

I’ve just been told that it’s International Media Ethics Day in September, which is so far away that I’m bound to forget to post something. But I have been thinking a bit about media ethics of late, and especially the ever-increasing list of rules designed to ensure that journalists are neither conflicted nor seen to be conflicted. And the more I look at such things, the more I come to the conclusion that all too often they do a very good job of banning harmless activity, while at the same time proving quite ineffective against situations which are far more ethically problematic.

It’s easy to come up with a list of cases where ethics watchdogs in high places have come down too harshly on infractions which were pretty harmless. Think of Mike Albo being fired from his NYT column, or for that matter Neil Collins being fired from Reuters. In neither case did the punishment fit the crime, notwithstanding of the letter of the law as unilaterally interpreted by the news organization in question.

It’s also easy to come up with instances of news organizations tying themselves up in rather hilarious knots in order to meet their own self-imposed ethical standards. Len Downie and Mike Allen never vote, for instance, for fear that their private and secret ballot might in some way inform their journalism. And I was particularly tickled by the contortions that the WSJ went through when faced with an extremely good-natured wager by Dan Neil:

The Wall Street Journal, which I joined in February 2010, does not permit its journalists to engage in this kind of wagering, regardless of subject or beneficiary — even by critics and columnists like me who are paid to have and express their opinions. And that’s perfectly reasonable: You wouldn’t want a theater critic betting a play will succeed or fail. Moreover, it’s better for journalists to write about the story than to somehow become part of the story. However, since I undertook this obligation before my tenure at the WSJ, and since the outcome is a charitable contribution, the Journal allowed me to follow through.

There’s an implication here that if Neil had promised to pay Elon Musk $1,000, rather than Doctors Without Borders, then the WSJ would have considered his welshing on his bet to be more ethical than his making good on it. We don’t know, which is a bit problematic in itself.

The theme running through all of these cases is that of reductio ad absurdum. Organizations decide that their journalists should be above reproach, and draft a set of rules to that effect. They then consider themselves bound by the rules, rather than by the principle underlying those rules.

The risk of absurdity is particularly high when it comes to social media in general, and Twitter in particular. As Twitter inexorably erases the professional/personal distinction, sophisticated organizations are increasingly adopting social-media policies based on simple “don’t be stupid” principles, rather than on hard-and-fast rules.

What goes for Twitter goes more generally, too. Twitter has proved that journalists are human, which has upside as well as downside. Journalistic ethics should embrace that, rather than trying to force all journalists into being magisterially impartial observers.

What would ethics look like in a world which is messier and more transparent? For one thing, we would spend less effort ring-fencing journalists’ lives and conflicts, and more time simply being open about them. The end result could actually be a significant improvement.

The reason is that the single biggest problem, when it comes to journalistic bias, has nothing to do with journalists owning stock in companies, or being paid speaking fees. (Although with speaking fees, a simple would-you-be-happy-being-transparent-about-this test is often a very good place to start.) Rather, by far the most common way in which journalists are captured by corporate interests is precisely the same way that journalists get scoops: source cultivation.

Journalists don’t always have sex with their sources, but when you’re having long and often boozy meetings with people, it’s statistically inevitable that many journalists are going to end up liking some subset of those people. After all, sources aren’t necessarily bad or evil: some of them are very good, very charming people. And often journalists end up working incredibly closely with sources for weeks or months on end as stories progress. Sometimes, that work becomes formalized: after Gretchen Morgenson used Josh Rosner as a source during much of the financial crisis, she then co-authored a book with him. Other times, the source ends up marrying the journalist: think Alan Greenspan and Andrea Mitchell.

But most of the time, it’s not nearly as obvious as that. Especially when it comes to background dinners with no particular agenda, a lot of what’s going on is a complex game of two people trying to get comfortable with trusting each other. That trust needs to be built up over time, and building it up takes a substantial amount of effort. It can be hard to distinguish, sometimes, from friendship. And if the journalist writes something bad about the source or the source’s company, the whole relationship can be jeopardized.

Keith Winstein has a fantastic way of explaining why beat reporters don’t make great investigative reporters; it basically comes down to the fact that beat reporters need access, which is the one thing that no company wants to give to an investigative reporter. But all reporters, be they beat reporters or investigative reporters or opinion journalists or anything else, have human sources and understandably feel bad if they write something that upsets the sources they get along well with. And that ends up shaping news stories, at the margin, much more than any financial incentives they might have.

Source relationships are particularly fraught when it comes to short-sellers, most of whom have good relationships with a certain subset of the financial-journalism world. That makes perfect sense: short-sellers often uncover newsworthy frauds, and it’s in everybody’s interest for those frauds to be uncovered in a public manner. But the closer a short-seller gets to a journalist, the more problematic the relationship, just because the short seller is likely to have advance notice of a key precipitating event — the publication of the story in question.

Here’s the problem: let’s say I’m a short seller, and I’ve uncovered a big fraud. I can go short the stock, but doing so is fraught with danger: so long as the fraud isn’t public, the stock can rise a lot and I can get stopped out. And if I simply sit back and wait for some journalist or government agency to find the fraud on their own, I could be waiting a very long time indeed. So I make things happen by talking to a journalist I know I can trust. And somewhere along the way I get a reasonably good idea for when that journalist’s story is going to appear — a story which I’m pretty sure is going to result in the company’s share price falling. At that point, I have the holy grail for any short-seller: knowing not only that a stock is going to fall, but also when it’s going to fall. And I have that information just because of how close I am to the journalist. You can see how the journalist, in this light, looks a bit less like the impartial crusader of Truth, and a bit more like the willing patsy of the short-seller.

I don’t know how or even whether this problem can or should be addressed, but I suspect that a bit more transparency could only help. And that’s not the only area where more transparency would surely be a good thing. I’m a long-time reader and fan of Joe Nocera, for instance, and so I know that he has featured Westwood Capital’s Dan Alpert in his column numerous times, as well as letting Alpert guest-blog for him on occasion. Last August, Nocera introduced him, quite explicitly, as “my friend Daniel Alpert”.

Yesterday, Nocera wrote about the eminent-domain plan for seizing underwater mortgages; he concluded that “it’s time to give eminent domain a try”. In doing so, he ducked all of the questions I’ve raised about the plan he’s writing about: how Mortgage Resolution Partners is buying mortgages rather than homes, and performing mortgages rather than defaulted mortgages, and indeed is trying to buy performing mortgages for a fraction of their face value, even as investors are valuing them at or even sometimes above par. “Since the home has dropped dramatically in value, the mortgage is worth a lot less than its face value,” asserts Nocera — ignoring the fact that once a mortgage is seasoned and performing well, it has to be worth at least as much as a performing unsecured loan of the same amount.

Why was Nocera so seemingly blind to the weaknesses in the MRP plan? Maybe he considered and rejected them; maybe he didn’t consider them at all. Or, maybe, he was predisposed to like the MRP plan because his friend Dan Alpert is one of the principal movers behind it. I knew that Nocera had written about the MRP plan before I knew what Nocera had written about the MRP plan — but because I also knew about the Nocera-Alpert connection, I didn’t need to read the column to know what Nocera’s conclusion would be. Nocera was under no compulsion to write about the plan, and I’m reasonably certain that if he can’t say something nice about Dan Alpert, he’s not going to say anything at all.

Dan Alpert wasn’t mentioned in Nocera’s column, and neither was his company, so even a close reader of Nocera’s work would have found it difficult to notice what you might call the friendship conflict. Nocera gives paid speeches, including to securitization professionals, and I don’t think that the money he gets paid for giving those speeches affects his columns one bit — any more than his cruise-ship seminars do. But the NYT keeps very close tabs on all that extracurricular income, because it’s seen as raising potential ethical issues. Nocera’s connection with Alpert, on the other hand, isn’t scrutinized at all — it’s a perfectly unexceptional journalist-source relationship — despite the fact that it must have had some significant effect on the column.

This, then, is where a bit of first-person transparency would come in useful. “I’m biased: I’ve known Dan Alpert for years, and he’s a friend. But I still think this is a good idea.” It doesn’t take up much space, it’s perfectly natural, and it helps readers understand where the writer is coming from.

Was it unethical for Nocera not to disclose his relationship with Alpert? I wouldn’t go that far. But then again, I don’t think it’s particularly helpful to try to draw rules-based bright lines between “ethical” and “unethical”, and say that anything on one side of the line is fine, while anything on the other side of the line is unacceptable. We don’t want journalists to become like corporate executives, who, in the words of Eduardo Porter, “behave as corruptly as they can, within whatever constraints are imposed by law and reputation”.

Instead, I’d encourage all journalists to consider every action they do, every day, and ask whether it’s helpful or unhelpful, good or bad, at the margin. And the point here is to spend as much time trying to do things which are good as you do avoiding things which are bad.

Right now, US journalism has a rather Calvinist view of ethics: it’s all downside and no upside. But it seems to me that if publications encouraged their journalists to be more ethical, rather than just requiring them not to be unethical, things might get a lot better. We’d see more detailed disclosures like Kara Swisher’s at All Things D. We’d see fewer anonymous quotes, since there’s always something a bit dirty and secretive about them. We’d have fewer journalists automatically saying “yes” whenever anybody asked them if they could talk off the record. And we’d have columnists like Nocera explain their personal connections to the subjects they were writing about, even when doing so isn’t strictly necessary: it would still at the margin be better than not doing so.

My suggestion for Media Ethics Day, then, is that, this year, we stop talking about rules: what behaviors are OK, and what behaviors aren’t. I don’t have a problem with those rules existing, but I worry that an unintended consequence of putting those rules in place is that journalists end up worrying much more about the rules, and what side of the rules they’re on, than they do about the underlying ethics of what it is that they’re doing, or not doing. Similarly, I’d like to see a little less emphasis on what constitutes unethical behavior in journalism. While that’s an important topic, it’s also a constrained one. What I want to see more of is discussion of what constitutes ethical behavior in journalism — what kind of things can all journalists do to make their practice ever more ethically sound?

I’d particularly love to see that conversation take place in the context of an increasingly social world, where friendships and relationships are more out in the open than they have been in the past, and where grown-ups recognize that conflicts are a fact of life, rather than something which should always be avoided.

If you study ethics in a philosophy department, it’s a tough nut to crack, with lots of very difficult questions. In a journalistic context, by contrast, everybody seems far too keen to boil everything down to simple yes/no answers.


And what is journalism these days anyway? A few years back I had no doubt what it was, but now I don’t know where the definition begins and where it ends. “The transmission of a single message, other than a sales promotions, via means capable of reaching more than 50 people”?

Posted by tindale | Report as abusive

When the Supreme Court leaks

Felix Salmon
Jul 2, 2012 06:37 UTC

On Thursday, in the wake of the Supreme Court decision on the Affordable Care Act, you could hear the machinery creaking as pundits around the web felt the need to respond. I took the media angle, deducing from seven minutes of CNN (which I didn’t even watch) that “TV news is ultimately much more an arm of the entertainment industry than it is of the news industry”, and that “if you want to be a journalist, don’t work in TV”. And over at Bloomberg View, Stephen Carter declared that “the most fascinating aspect” of the 193-page decision — which I’m sure he hadn’t read in full — was the fact that it hadn’t leaked:

Smack in the middle of a city where leaks are a way of life, here was a pending action that pundits were proclaiming would determine President Barack Obama’s legacy, and the capital’s legion of political reporters was unable to ferret out the smallest advance hint of the court’s intentions — even though the initial vote probably came three months ago. The justices themselves, their law clerks and all the personnel of the court cooperate in maintaining the veil…

Just as nobody can watch the video, neither does the court leak. These two facts are of a piece.

This afternoon, with a single deeply-reported article, Jan Crawford of CBS News proved us both wrong. Her 2,400-word piece is as good a piece of legal journalism as I’ve seen, and confirms what some had suspected: that Chief Justice Roberts changed his mind with respect to his decision. She adds lots of fascinating detail about how everything went down: after he changed his mind, Crawford reports, Roberts was heavily lobbied by the judges who wanted to strike down the law, who wanted to coax him back into their own fold.

Carter’s glowing view of his fellow jurists is in large part justified, not only at the Supreme Court level but also throughout the federal judiciary. Lawyers, it turns out, tend to be good at keeping secrets. On the other hand, partisan politicians are not. And it seems very much as though the more partisan Republicans within the Supreme Court have in this case behaved more like politicians than like jurists.

Roberts’s action “stirred the ire of the conservative justices”, says Crawford, who reports on what happened “in the Court’s private conference immediately after the arguments”, where only the nine justices are present. And that’s not the only secret conversation that leaked:

It is not known why Roberts changed his view on the mandate and decided to uphold the law. At least one conservative justice tried to get him to explain it, but was unsatisfied with the response, according to a source with knowledge of the conversation.

Crawford was also given the code to unlock the secret message in the unsigned dissent:

The fact that the joint dissent doesn’t mention Roberts’ majority was not a sign of sloppiness, the sources said, but instead was a signal the conservatives no longer wished to engage in debate with him.

As Crawford says, “the justices are notoriously close-lipped, and their law clerks must agree to keep matters completely confidential”. And yet, we’re now seeing these coordinated and perfectly-timed leaks from within the Court, detailing information known only to the justices themselves. The conservative justices are leaking, and although Crawford talks about “law clerks, chambers’ aides and secretaries” who have been gossiping internally about Roberts’s change of mind, it’s pretty clear that her sources were impeccable and that if they weren’t the conservative justices themselves, they were sources who had the explicit consent of those justices to start talking to the press.

Carter’s article bemoaned the ubiquity of leaking in Washington, describing it as “despicable”, and saying that “one reason to admire the court, even when one disagrees with it, is its ability to withstand the temptation to which other government bodies regularly yield.” He concludes his column by saying that “the rest of Washington would do well to learn from the court’s example”.

Instead, it seems, the Supreme Court has become infected by exactly the same partisanship which has corroded civic life everywhere else in DC. Maybe that was inevitable. But this story is still a signal journalistic accomplishment — and it was written at law-geeky length by a TV reporter. Crawford deserves all credit for getting this scoop — and for showing that there is life yet in broadcast journalism.


@y2kurtus, that is an excellent point. If you add in the federal subsidy of the health insurers, that figure would rise even higher.

It remains to be seen how the ObamaCare bill plays out, but if the public enrollment grows at the expense of the private enrollment, you eventually reach a point at which the economics are unsustainable. We might already be past that point. Single-payer is the logical next step.

There are only two ways to spend less on health care. Either you limit access or you streamline the system. Whether the final bill is paid by individuals, by employers, or by the federal government, that fundamental equation doesn’t change. A single-payer system OUGHT to be more streamlined (though I do have some qualms about losing the cost-control expertise of the HMO and PBM businesses).

Moreover, having the government fund health care directly eliminates the mess of incentives/disincentives that are currently embedded in the employer-funded system. Presently, every household needs ONE person employed in a job that offers health care benefits. (Typically worth 25% or more of the base salary for a family plan.) But if the second worker also takes such a job, the valuable benefit is wasted. It is a perverse disincentive for a spouse NOT to work.

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