Felix Salmon

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American companies have gotten the message from the market: borrow as much as you can, as fast as you can.

So far this year, $315 billion of investment grade bonds and $124 billion of junk bonds were issued, according to Thomson Reuters data, respective increases of 36% and 17% over the same period last year. The massive syndicated loan market is up 13% to $654 billion over the same period. Those numbers don’t include the blazingly hot convertible-bond market, or foreign issues like Petrobras’s monster $11 billion bond last week.

Even as debt issuance booms, however, Reuters’ Mike Dolan reports that finding an actual bond in the wild isn’t necessarily easy. “JPMorgan estimates that the world’s central banks and commercial banks… hold some $24 trillion worth of bonds — or 55% of the entire $44 trillion universe of government, asset-backed and corporate bonds”.

Sober Look says that low rates have pushed companies to borrow, even if they don’t have a use for the capital — debt and cash are piling up on American balance sheets. John Kay attributes growing cash piles to a decline in truly capital-intensive US businesses, like heavy manufacturing. Soaring debt issuance, he thinks, is “more likely related to financial engineering, or the acquisition of existing assets, than to new investment”.

On cue, there are worries about excessive risk-taking by banks and the “reach for yield”. The bond rally is vulnerable, according to the WSJ’s Richard Barley, “since it isn’t driven by fundamental factors.” The Contrarian Corner comes to a more nuanced conclusion. Some portions of the bond market are overpriced (CCC), others aren’t (BB), because investors “can’t resist a high-coupon and overestimate their ability to pick the bond that won’t default”. — Ben Walsh

On to today’s links:

Yikes
Bloomberg is already comparing the EU oil trading scandal to Enron – Bloomberg

Investigations
Steve Cohen is considering a deal with authorities that would shut his fund to outside investors – Bloomberg
Cohen has been subpoenaed to in the SAC insider trading investigation - DealBook

Deals
Yahoo plans to be “hands off” after buying Tumblr for $1.1 billion – Kara Swisher

Hope
Ben Bernanke instructs graduates to be optimistic about the future, invoking Keynes (and robots) - The Fed

JPMorgan
How Jamie Dimon became a risk factor – Justin Fox
Tuesday’s JPMorgan vote could be an “inflection point in shareholders’ push for greater say in the boardroom” – DealBook

Ouch
You’re more likely to get a high-skilled worker visa as a model than as a computer programmer – Bloomberg

Charts
The end of the car and the labor force participation rate – Joe Weisenthal

Great Headlines
Big rig carrying fruit crashes on 210 Freeway, creates jam – LAT

Legalese
A law professor is taking on telecom monopolies - NYT

Primary Sources
New paper suggests the Fed find some central bankers who understand how the economy works – Romer and Romer
The Senate report on Apple’s offshore tax strategies – US Senate

Wonks
Gold and the “wedge between financial markets and economic fundamentals” – Mohahmed El-Erian
A rant on why money isn’t “easy” – Scott Sumner
Time to start worrying about the recoveryless recovery – WSJ

EU Mess
No, Greece isn’t turning the corner – Megan Greene

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

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

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

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

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

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

On to today’s links:

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

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

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

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

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

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

Oxpeckers
“Sponsored Content Pretty Fucking Awesome” – The Onion

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

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

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

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

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

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

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

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

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

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

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

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

On to today’s links:

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

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

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

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

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

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

Second Acts
Sallie Krawkcheck buys 85 Broads – DealBook

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

New Normal
The world is in a bond drought – Reuters

Layoffs
HSBC will cut another 14,000 jobs – Reuters

Bitcoin
Homeland Security shuts down major Bitcoin payment system – BetaBeat

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

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

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

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

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

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

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

On to today’s links:

Energy
The price of oil may finally start declining – Quartz

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

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

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

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

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

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

Felix
Why dedecimalization is a bad idea – Reuters

Remuneration
University presidents get paid a lot – Pacific Standard

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

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

Oligarchy
Family offices are the new private equity firms – Reuters

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

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

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

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

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

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

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

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

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

On to today’s links:

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

Ugh
How austerity killls - NYT

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

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

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

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

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

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

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

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

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

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Institutional Shareholder Services’ message is clear: no one man should have all that power.

More specifically, ISS has declared Jamie Dimon shouldn’t be JP Morgan’s chairman and CEO. The firm, which advises shareholders on corporate voting, is also recommending that its clients not support the reelection of three of the bank’s directors. Each of those directors — David Cote, James Crown and Ellen Futter — sits on the bank’s risk committee. The proposal to split the roles of chairman and CEO is non-binding; the re-election of board members is binding. It’s unclear whether either measure will pass.

The risk committee, whose oversight failed spectacularly prior to and during last year’s $6.2 billion trading loss, has no members who have worked at a bank or as financial risk managers. ISS called the committee members’ “lack of robust industry-specific experience” odd, particularly compared to their counterparts at JPM’s competitors.

The WSJ’s Francesco Guerrera wrote last month that the era of the “imperial chief executive” might be winding down on Wall Street. The trend goes beyond finance. Boeing and GE faced (and defeated) proposals to split the roles of chairman and CEO this year. With shareholders demanding more scrutiny of management, the “current Wall Street incumbents are likely to be the last ones to hold a dual role”.

Dimon does have at least one high profile shareholder on his side. Warren Buffett says he is “100% for Jamie… I couldn’t think of a better chairman”, which is no surprise to Jonathan Weil. JP Morgan and Berkshire Hathaway share a director (Stephen Burke), and Buffett is a JP Morgan shareholder. The avuncular investor is also chairman and CEO of his own company, but tellingly, that won’t continue past his lifetime.

Shareholders may be able to take comfort in executives’ discomfort. One study found that “companies that had separated the two roles received a 28-percent higher five-year return”. – Ben Walsh

On to today’s links:

Lawsuits
NY attorney general to sue BofA and Wells Fargo over mortgage practices – Reuters

Remuneration
The top paying-industry for big-name execs? Media – NYT

Subsidies
The average student pays just 55% of the advertised price for college – WSJ

Austerity Bites
The era of austerity is over, according to the French finance minister – Bloomberg
“There probably will not be any major changes in Europe until after Merkel’s reelection” on Sept. 22 – Calculated Risk

Legalese
The Supreme Court under Roberts is the most business-friendly court since WWII – NYT
“How business fares in the Supreme Court” – Minnesota Law Review
MBIA, Bank of America reach legal settlement - Reuters

Deals
BMC Software agrees to $6.9 billion acquisition by private equity group – Reuters
The deal is a win for private equity, and for major shareholder Elliott Management – DealBook

New Normal
The recovery is non-existent if you don’t have a college degree – Josh Brown

Possibly Useless Data
“The data crunchers are invading Hollywood” – NYT

Remuneration
Are stock buybacks in the interest of shareholders or CEO bonuses? Both. Maybe. – WSJ
“Buybacks are an efficient way of returning money to shareholders of a shrinking company” – Felix

Yikes
If you’ve ordered mutton in China recently you may have eaten rat – Reuters

Alpha
Is Soros shorting the Australian dollar? Someone seems to be – Sydney Morning Herald

Startups
The Instagram story: From launch to a $1 billion sale in 18 months – Kara Swisher

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

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JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank’s latest scandal is a classic: overcharging unwitting customers.

Jessica Silver-Greenberg and Ben Protess report that JP Morgan is in some very hot water with the Federal Energy Regulatory Commission (FERC). According to an agency memo, the bank turned “money-losing power plants into powerful profit centers”.

Under other circumstances, that’d be just another win for JP Morgan’s booming commodities division. The problem is that JP Morgan’s success came through allegedly duping California and Michigan state officials into overpaying for energy by $83 million. These same allegations were included in Joshua Rosner’s comprehensive review of the bank’s regulatory lapses published in March.

When confronted by regulators, Blythe Masters, the bank’s head of commodities, made “false and misleading statements”,  FERC says. The traders working for Masters “planned and executed a systematic cover-up” of the trades,” and an email from Masters instructed an internal document to be rewritten. Importantly, the agency plans to hold both JP Morgan and individuals at the bank liable for any infractions.

Additionally, the WSJ, relying on a separate confidential regulatory document, reports that the usually tame-to-a-fault Office of the Comptroller of the Currency is planning to punish the bank for its consumer debt collection practices.

The American Banker surveys the damage under the heading “Jamie in the hot seat”. Dimon has continued to revamp his management team — hiring a new new vice chairman yesterday to replace an outgoing ally. With at least eight federal agencies investigating the bank, JP Morgan may soon have additional management slots to fill, possibly including Dimon’s role as chairman. – Ben Walsh

Compelling
How textile kings weave a hold on Bangladesh – Reuters

Tech
Twitter hires Morgan Stanley banker, may or may not be considering an IPO – WSJ

Servicey
REITs with no employees are probably not great at looking out for investors – Bloomberg

EU Mess
European Commission suggests giving countries more time to get their deficits cuts in order – WSJ

Felix
A deeper look at the slow jobs recovery – Felix Salmon
Full text of the April jobs report – BLS

Wonks
Does population growth necessarily lead to higher housing prices? – Paul Krugman

Possibly Useless Data
On a price-per-hour basis, haute cuisine cheaper than a massage – Eatocracy

Good Points
Predicting jobs data is not only hard — it’s also useless – Barry Ritholtz

Ouch
BNP Paribas CEO satisfied with the bank’s 45% profit drop – CNBC

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

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One day after a downright cheery report on the housing market, Barack Obama has moved to replace the widely-criticized head of the FHFA. Mel Watt, a Democrat and longtime presence on the House Financial Services Committee, has been nominated to replace Ed DeMarco, who’s been acting head of the agency that regulates Fannie Mae and Freddie Mac since 2009.

This wasn’t entirely unexpected — the trial balloon for Watt’s candidacy has been afloat since March. (It was reportedly down to Watt and economist Mark Zandi.) As head of the agency, DeMarco has been pilloried by critics for opposing principal reductions for struggling homeowners, a method that’s long been championed by housing reformers, the Obama administration and the Federal Reserve.

Just today, the Congressional Budget reported that a even small-scale principal forgiveness program could save the US government billions. As Felix wrote last July, DeMarco has seemed to oppose principal reductions on principle, arguing that slashing homeowners’ mortgage debt would be tantamount to a nation-wide breach of contract. (DeMarco has also suggested all this would end up costing taxpayers.)

Watt has publicly supported principal reductions, but his record isn’t terribly easy to categorize: As Nick Timiraos notes, while he pressed for support for low income borrowers, he also voted against pay cuts for Fannie and Freddie execs. Watt, who represents the Charlotte region, counts financial firms (hello, BofA) as some of his larger donors, but one consumer advocate says Watt has been “He is neither a champion nor a source of frustration”.

Matt Yglesias says everyone can find something to hate in Watt’s nomination. The housing industry, however, was supportive. Which doesn’t mean Watt will be confirmed. Edward Mills of FBR Capital Markets put it this way to Housing Wire:

Senate Republicans (who have the votes to block a nomination) will be extremely reluctant to support a candidate who has publicly backed principal reductions, has supported bankruptcy changes allowing for ‘cram-down’ on residential mortgages, and served on the House Financial Services Committee during the height of power of Fannie and Freddie (having accepted campaign contributions from both).

– Ryan McCarthy

On to today’s links:

Wonks
The studies behind austerity are weak. The study behind “uncertainty” is worse – Ezra Klein

TBTF
The S&P report on the Brown-Vitter bill “shows how backwards things have gotten on Wall Street” – Matt Taibbi
“It probably won’t get passed, but its underlying premise cannot be dislodged from the Washington conversation” – Jesse Eisinger

Alpha
There will be haircuts – Bill Gross
How to read a 10-k – The Financialist

The Fed
The Fed holds course, blames fiscal policy for holding back the economy – FOMC
How the Fed statement has changed – Phil Izzo

Welcome to Adulthood
Explaining the student debt bubble in 17 charts – Matt Phillips

Epistles
Brian Eno wrote a long letter to Nassim Taleb – Artangel

Cephalopods
Goldman’s names a new head to its Special Situations Group – Lauren Tara LaCapra

Startups
Why founders can end up with nothing when their company is sold – Steven Davidoff
This is what it looks like when you lose all of your startup money – Sam Biddle

Laziness Pays
Ordering groceries online is greener than driving to the grocery store – Brad Plumer
Fresh Direct’s grocery trucks are ruining our city streets – Streetsblog

Underground Economies
Inside the secret drug-smuggling tunnels of the Italian mafia – BBC

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

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Both the Federal Reserve and the European Central Bank will meet this week, and they’re expected to continue their current policy, which Bloomberg describes as “flooding the world with cash.” Bloomberg also cites an estimate from Barclays that central banks will buy $2.5 trillion in assets this year – more than twice the amount purchased in 2012. This week, the ECB may lower interest rates to 0.5%, although it’s far from a done deal, according to Reuters. The Fed, Jon Hilsenrath reports, is likely to keep its rates at their current level.

There are a number of voices concerned that fiscal policy (read: austerity) has made monetary policy less effective. Mike Konczal writes:

If you look at macroeconomic policy since last fall, there have been two big moves. The Federal Reserve has committed to much bolder action in adopting the Evans Rule and QE3. At the same time, the country has entered a period of fiscal austerity. Was the Fed action enough to offset the contraction? It’s still very early, and economists will probably debate this for a generation, but, especially after the stagnating GDP report yesterday, it looks as though fiscal policy is the winner.

Paul Krugman largely agrees, saying that, “as a practical matter the Fed — while it should be doing more — can’t make up for contractionary fiscal policy in the face of a depressed economy.”

There are still those who believe in the power of the central bank. Economist David Beckworth — who proposed back in 2011 that the Fed do exactly what it has been doing over the past six months — says Konczal and Krugman undersell how well monetary policy has worked. He points to nominal GDP, which has been steadily growing since austerity measures began in 2010 (though slower than before the crisis).

Nouriel Roubini has also chimed in, arguing that whatever the Fed does from here forward will likely be a problem. “The exit from the Fed’s QE and zero-interest-rate policies will be treacherous: Exiting too fast will crash the real economy, while exiting too slowly will first create a huge bubble and then crash the financial system,” he says. – Shane Ferro

On to today’s links:

Primary Sources
If there is a limit to money buying happiness, we haven’t reached it yet – Brookings

Facebook
Facebook is reportedly losing millions of users in major markets – Guardian

Inequities
America’s education system leaves no rich child behind – Sean Reardon

JPMorgan
JPMorgan’s co-COO — and a top Dimon ally — is leaving – DealBook
JPMorgan tops Goldman in investment banker pay – Bloomberg

EU Mess
Spain’s economic crisis is creating a permanent underclass – Matthew O’Brien

Possibly Useless Data
New study finds Google Trends may be a useful stock-picking tool – Nature
Back in 2010, the same researchers found Google Trends couldn’t predict stock market fluctuations – Science

Servicey
Charting the difference between critics and haters – Ann Friedman

Yikes
The battle over a dead NFL player’s brain – Frontline

Data Points
The racial wealth gap in the US is 50% worse than it was before the recession – NYT

Oxpeckers
The golden age of the blog has ended – The New Republic

EU Mess
Moody’s says Italy may still need a bailout – Reuters

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

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The one thing that can be said with certainty about this morning’s GDP figures, which showed the US economy advancing at a weak 2.5% pace, is that they’re ephemeral. Many of the data points that make up this advance estimate “could vanish in a flash of re-estimation,” as Matt Yglesias writes. Besides, the Bureau of Economic Analysis is about to recalculate all GDP data back to 1929 in order to better account for the value of intellectual property.

Those caveats aside, the today’s GDP figures show economic growth that’s “persistent” but “underwhelming,” in the words of Credit Suisse’s Jay Feldman. Government spending, which fell at 4.1% rate in the first quarter, continued to be a drag on growth, as it has been in 10 of the previous 11 quarters. The six-month decrease in government spending was the largest since the end of the Korean War, according to Capital Economics. The fall was driven in large part by an 18.5% annualized decline in defense outlays over the past two quarters. The White House chalked up a piece of that drop-off to sequestration, although those mandatory budget cuts went into effect only in the final month of the quarter.

Investment was more of a mixed bag: residential investment rose, but business investment in structures like factories and office buildings fell. Though business investment in equipment and software was up, it increased by a lower rate than earlier in the recovery, observes Neil Irwin.

The data on personal income and spending were also a bit puzzling. Disposable income fell by over 5%, thanks in part to the increase in the top marginal tax rates, the expiration of the cut in the payroll tax, and more expensive energy. However, that dip seemed to have little impact on personal consumption expenditures, which rose at a 3.2% annual rate.

It’s unclear what this resilience in consumer spending means for the future. Ryan Avent says this month’s numbers suggests that “household deleveraging may have many families feeling more financially secure and ready to spend.” However, it appears many consumers could only afford to spend more by drawing down savings: Jared Bernstein points out that the savings rate fell by two percentage points to 2.6%, the lowest since the fourth quarter of 2007. — Peter Rudegeair

On to today’s links:

New Normal
Who really needs an AAA rating these days? Not the world’s largest economies – FT Alphaville

Apple
Meet Apple, the new Microsoft – Matt Phillips

Wonks
Reinhart and Rogoff defend their research on debt and GDP – NYT
Dear Robert Shiller: “not all price increases are temporary” – Adam Ozimek

Crisis Retro
Goldman’s “Fabulous Fab” is now pursuing a doctorate in economics at the University of Chicago – WSJ

Even More TBTF
Is the Brown-Vitter banking reform bill too simplistic? – DealBook
“This is the appropriate direction for regulation” – Matt Yglesias

Long Reads
Spring break for nerds: Inside the SXSW industrial complex – Noreen Malone

Interesting
Our feel-good war on breast cancer – NYT
February 2012 analysis: The proportion of money the Susan G Komen Foundation spends on scientific research has been steadily declining – Reuters

Fiscally Speaking
28 slides on the Federal budget – CBO

Gray Areas
Banks won’t do business with Colorado’s legal marijuana growers – Guardian

Yikes
Ties to a Russian mob-run poker ring may have cost Marc Lasry the ambassadorship to France – NY Post

Mobile Wars
Low to mid-market smartphones could undercut the Samsung-Apple war – WSJ

They’re Just Like Us
C-list socialites squabble over child support payments – DealBook

Bitcoin
The world’s first Bitcoin local economy: “Bitcoin scares people in suits, which I like” – Guardian

Be Afraid
Thousands of radioactive pigs are wandering Europe, thanks to Chernobyl – Modern Farmer

Alpha
George Soros buys a 7.9% stake in JC Penney – DealBook

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

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Here’s the post-crisis recovery in a nutshell: from 2009 to 2011, the “mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%”, according to new report by the Pew Research Center.  The reason for this, Pew says, is clear. Capital markets, where the wealthy hold a disproportionate amount of assets, boomed, while the housing market, the biggest source of wealth for most Americans, was flat.

Josh Brown looks at the Pew study and concludes that “wealthy American households have never had it quite so good”. He sees a statistical portrait of American rentiers, a class with “investment portfolios who essentially extract an income from the nation and return very little (in the form of jobs or spending) in comparison to what they take”. At the other end of the spectrum, America’s dealing with the quiet humanitarian disaster of long-term unemployment, which Paul Krugman says is creating an increasingly “permanent class of jobless Americans.”

The WSJ’s Neil Shah tries to find a slight silver lining in other data from the Federal Reserve, which show that “Americans have recouped much of the wealth they lost during the recession”. Household wealth at the end of 2012 was $66.1 trillion, just a little more than a trillion short of its 2007 pre-recession peak.

Unfortunately, housing may not return to its former role in the US economy. Amir Sufi, an economist at the University of Chicago, writes in a new paper that the “days when housing was the predominant force driving economic activity are gone”. Housing’s vaunted wealth effect, Sufi finds, was most evident among poorer homeowners. They’ve now been largely shut out of the the housing market, and aren’t likely to be coming back anytime soon. — Ben Walsh

On to today’s links:

EU Mess
Jose Manuel Barroso’s anti-austerity comments anger Germans, encourage everyone else – Der Spiegel

TBTF
Brown and Vitter unveil the first draft of their bill to reform Dodd-Frank – Tim Fernholz

Not-So Small Government
The US government’s investment in electric cars is not going well – NYT

Hot Money
The world’s largest commodities firm did hundreds of millions of dollars of business with Iran last year – Guardian

Charts
The vanishing Wall Street trader – Bloomberg
Human traders are winning, reports increasingly scarce human trader – Bloomberg

Wonks
Paul Krugman rules the land of economic punditry as “KrugTron the Invincible” - Noah Smith
A high risk, high return solution to the EU mess – Dan Davies

Compelling
Reddit users’ failure to identify the Boston bombers doesn’t debunk the wisdom of crowds – James Surowiecki

Oxpeckers
“If Jill Abramson were a man…” – Ann Friedman

Growth Industries
Diseased pig carcass disposal is becoming a big business in China – Caixin

Popular Myths
Don’t buy a stock because you like a product – NYT

Politicking
The SEC may require public companies to disclose all political contributions – NYT

Indicators
The internet is obsessed with North Korea, even when there isn’t any real news – BCA Research

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

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Analysts may have made a huge mistake in lowballing estimates of Netflix’s subscriber growth. Thanks in part to the acclaim of House of Cards — and maybe in anticipation of new episodes of Arrested Development — Netflix was able to add 2 million new streaming subscribers in the US in the first quarter. Its streaming subscriber base is now 29.2 million in the US, or 200,000 more than was expected.

Zach Seward has more promising data points from Monday’s earnings release:

• Netflix now has more American subscribers than HBO (29.2 million vs. 28.7 million)

• Netflix is now the most watched “cable network” in the US (U.S. households spend 87 minutes per day using the service, more than any other cable outlet)

• Netflix is the S&P’s best performing stock of 2013 (up 134% to date)

Netflix shares have a lofty price to book ratio of 13.1, nearly as high as Amazon’s 13.9. Analysts are scrambling to catch up with investors’ bullishness: “At least eight brokerages raised their price targets on the stock by as much as $75 to as much as $250,” Reuters reports, in an echo of the last time Netflix’s stock decoupled from its fundamentals.

Derek Thompson says that Netflix’s quarter was an “epic win” and shows that its grand strategy — “Step 1: Buy original content; Step 2: Add subscribers; Step 3: Profit” — is paying off.

But that last part of the strategy, the profit, has been muted. Despite the jump in subscribers, Netflix’s net income was just $3 million on revenue of $1 billion. Moreover, Netflix’s cash flow is deteriorating and the company has off-balance sheet liabilities equivalent to 76% of its assets, as ZeroHedge points out.

Even the positive signs — like the uptick in the streaming business’s operating margin to 20.6% from 19.2% — could end up being temporary. As Felix wrote last year, Netflix’s content costs are unpredictable: “any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears.” – Peter Rudegeair

On to today’s links:

Apple
Apple reports $43.6 billion in revenue and $9.5 billion in profit – Apple
Apple will return $100 billion to shareholders by 2015 – WSJ

New Normal
Household wealth is up, but only for the top 7% – Pew Social Trends

Remuneration
7 large financial companies are actually listening to the Fed and scaling back pay – WSJ

Mea Culpas
Reddit apologizes for “online witch hunts and dangerous speculation” – The Verge

Charts
The thoroughly unimpressive US economy – Cullen Roche
Today’s massive market plunge, in full perspective – Ben Walsh

Wonks
Actually, student loans are a major drag on the economy – Mike Konczal
Student loans aren’t destroying the economy – Derek Thompson
“The slowdown in economic activity is right on schedule – for the 4th year in a row” – Sober Look

New Normal
The quiet humanitarian disaster of long-term unemployment – Felix
“We are creating a permanent class of jobless Americans” – Paul Krugman

Billionaire Whimsy
Bloomberg is getting into the online investment advisory business – Bloomberg Black
Bloomberg is trying “to disrupt the financial disruptors” – Josh Brown

Quotable
“The Urban customer… is the upscale homeless person” – BuzzFeed

Awesome
“An open-source plagiarism detection engine” – The Atlantic

Servicey
Startup CEOs, stop raising money just because you can – Bryan Goldberg

Pivots
Vimeo founder’s ‘brilliant scam’: Apply here to build him a bathhouse – Nitasha Tiku

Explained
Why the rich are rich: luck – Businessweek

Euphemisms
HSBC breaks new ground in corporate doublespeak, announces it will “demise” 1,149 employees – The Times

Ouch
Some really troubling manufacturing data from the world’s biggest exporters – Reuters

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

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The Bureau of Economic Analysis is “essentially rewriting economic history” all the way back to 1929, according to the bureau’s head of national accounts. By adding in the value of American companies’ intellectual property to the way it calculates GDP, the bureau is increasing its estimate of the size of the US economy by roughly 3%. That’s an increase equal to the size of the Belgian economy, Robin Harding points out.

“On a purely technical level, this should more precisely match GDP in any one quarter to the actual economic value the nation generates in that span,” says Neil Irwin. But perhaps more importantly, it points to a shift in how governments value the role intangible ideas play in economic growth. The US  is one of the first to adopt a new international standard for GDP accounting, set by the UN in 2008.

The new data reclassifies R&D as a capital investment akin to a company buying a new tractor or factory, rather than simply the cost of doing business. Estimates from the BEA show this change alone increased GDP by $300 billion (nearly 2%) in the base year of 2007.

The accounting change also includes creative works — the intellectual property behind movies, music, books, and even paintings. In another post, Harding suggests this part of the change may be controversial, as it “will amount to the first official estimate of the value captured from the laws of copyright.”

The American economy is increasingly intangible. Last year, the US Department of Commerce detailed the impact of IP-heavy industries: they employ 40 million people in the US (27.1 million directly and 12.9 million indirectly) and contribute just over a third, or $5.06 trillion, to US GDP. Those IP-intensive jobs also pay 42% more than other industries. – Shane Ferro

On to today’s links:

Servicey
7 lessons on how to fix an economy – David Wessel

Felix
The story of the Boston bombing wasn’t “whatever our readers happen to be finding on the Internet” – Reuters

Charts
How underwater mortgages killed the economy – WaPo

Tax Arcana
The hot new tax-avoidance trend: Classifying your business as a REIT – NYT
The economic case for an Internet sales tax – Economist
eBay is emailing its users to help kill a proposed Internet sales tax – Reuters
The tax treatment of “ice cream cakes and similar items” – State of Wisconsin

Alpha
Investors are pouring billions into the latest hot housing asset: rentals – Bloomberg
This is exactly what the housing market needs – Matthew Yglesias

EU Mess
European austerity isn’t working – debt is up and growth is flat – Guardian
Bill Gross: austerity is not the “way to produce real growth… You’ve got to spend money” – FT

Oxpeckers
The Koch brothers may buy the LA Times and Chicago Tribune – NYT

Ugh
The securities industry isn’t a fan of its employees’ privacy – WSJ

Find Your Own Meaning
Goldman Sachs hosts a hedge fund conference at Yankee Stadium – NY Post

It’s Academic
“An attempt to describe intelligence as a fundamentally thermodynamic process” – Inside Science

Primary Sources
Teachers unions rethink investing in funds that publicly advocate slashing pensions – American Federation of Teachers

Meta-Takedowns
Herdon responds to R&R’s response to Herdon’s takedown of R&R – Business Insider

Probably True
Microsoft Office is the “quiet villain of global finance” – Breakingviews

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

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The leaders of the G20 met in Washington today; their official communique was sent out, like any grand pronouncement, as a Word document posted on a Russian website.

The world’s most powerful finance ministers and central bankers appeared to be working through some serious confusion today. Even India’s finance minister seemed a bit puzzled by all the talk of Europe: “It was supposed to be a G20 meeting, but for a moment I thought it was a G7 meeting”, he said.

Three days after a grad student dismantled the widely-held idea of a 90%-of-GDP tipping point for national debt, the G20 agreed to move away from the idea of setting specific national debt targets. This a big change — just three years ago, the G20’s richest nations pledged to cut their deficits in half by this year. Now, as Reuters notes, Europe is not just re-thinking austerity, but promising to slow it down.

The IMF, which previously endorsed Britain’s austerity program, has now changed its stance on debt. That may augur a direct confrontation with the Cameron government. Just today, the UK had its credit outlook downgraded by Fitch, in part because of a “weaker fiscal and economic outlook”.

Mohamed El-Erian blames the IMF for some of the global policy confusion. While he admires the Fund’s “highly respected” analysis and “world class insight”, he says that policy implementation “frequently falls hostage to pressure from its political masters in advanced economies.”

His case in point: during the Cyprus crisis, the IMF signed on to a flawed rescue plan, then quickly retracted its support. The “IMF felt it had no choice but to succumb to pressure by European politicians,” El-Erian writes. Neil Irwin, on the other hand, applauds the IMF for changing its mind on debt and says that the IMF has now become the kind of friend who urges you to work less and drink more. (At the end of a long week, we at Counterparties appreciate those kind of friends.)

The G20 bigwigs also seemed unsure about the effectiveness central banks’ easy monetary policy. On Friday, there were no G20 objections to Japan’s two-year $1.4 trillion monetary stimulus program. But the FT’s Chris Giles says that, after years of low rates and stimulus, the world’s central bankers feel they’re effectively flying blind, in an “environment of uncertainty about the way economies work and how to influence recoveries with policy”.

Ex-ECB executive board member Lorenzo Bini Smaghi summed up the meetings. “We don’t fully understand what is happening in advanced economies,” he said. – Ryan McCarthy

On to today’s links:

Regulators
The SEC is moving past the financial crisis and onto a “bold and unrelenting” enforcement program – Bloomberg

Even More TBTF
Mortgage REITs, the latest systemic threat to the US financial system – WSJ

Data Points
Canadians surpass Americans in net worth – WSJ

Politicking
If at first you don’t succeed: Simpson and Bowles are back with another deficit plan – Bloomberg
The new Simpson-Bowles plan in full (pdf) – Moment of Truth

Tech
Is there a new tech “rust belt”? – WSJ

Correlation
Generational attitudes on sushi and gay marriage – Mother Jones

Progress
Abe’s growth plan for Japan includes getting more women to lean in – FT

Deals
Dude, Blackstone isn’t getting a Dell – WSJ

Random
The European Spreadsheet Risks Interest Group exists, and is predictably awesome – EuSpRiG

Alpha
“Two traders with a Bloomberg terminal” no longer guarantees hedge fund prosperity – Economist

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

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The fallout over the Reinhart and Rogoff errors continues. Yesterday’s debate circled around what this all means for austerity. Today, the debate widened, taking a few steps backwards in search of perspective. The economic profession as a whole – along with that of the bloggers who popularize it – ended up coming  in for criticism and soul-searching.

The authors at the heart of the controversy did continue to argue about the substance of the criticisms. RR published their second response, conceding that the UMass paper has indeed found a “significant mistake” in their data on international debt-to-GDP ratios. They said that their overall argument, however, remains valid. Meanwhile, Robert Pollin and Michael Ash, two of the UMass researchers, kept pushing in an FT op-ed this morning, saying that the time has come to “rethink austerity economics”.

Both Josh Barro and Matt Yglesias took issue with one of the most common interpretations of RR’s work  – the existence of a sort of economic tipping point for countries with debt-to-GDP ratios above 90% – and argued that new evidence makes that thesis extremely weak. Other bloggers, however, moved on from the argument over minutiae in the data to ask what this mistake means for the field of economics.

Chris Dillow questions whether today’s economists value the right skills. He says that RR’s errors “reflect a culture which prizes” the ability to produce brilliant, explanatory theories over the “dull pedantry” of meticulously examining data. Justin Fox likens the debate to “watching the sausage of macroeconomics being made.” Data is relatively scarce in the field, he says. As a result, we should “acknowledge that our knowledge is limited and proceed anyway on a mix of data, theory, and intuition.”

Peter Frase uses the controversy to rail against non-academic econobloggers, or “wonks”, who parrot the findings of academics:

When Wonkblog presents the findings of Reinhart and Rogoff without comment, they are implicitly telling us, “trust these people—they’re famous academic economists”. This is because they don’t have the ability to do what people like Paul Krugman did, and actually assess the correctness of the famous economists’ claims.

Zach Beauchamp echoes Frase’s sentiment, wondering if “the new spate of academic-study blogging might, far from informing the public, actually be lulling it into a false sense of intellectual security”.

Paul Krugman, writing no less than three posts on the issue, just wishes policy-makers would stop using research which hasn’t gone through peer review to validate their political views. After pointing out RR’s clear errors, he concludes that “the larger story is the evident urge of Very Serious People to find excuses for inflicting pain.” – Shane Ferro

On to today’s links:

The Fed
The Fed may be creating “abnormal growth that looks precancerous” – Jesse Eisinger

Right On
An imperfect immigration reform bill would still be enormously positive for America – Eduardo Porter

Takedowns
The self-defeating, self-interested push for financial literacy – Helaine Olen

New Normal
How student debt is hurting homeownership and auto sales – Liberty Street Economics

TBTF
Fed’s Stein: There is actually a subsidy for too big to fail banks – Federal Reserve

Popular Myths
Sorry Millenials, but you’re part of the least entrepreneurial generation – Quartz

Earnings
BofA’s disappointing first quarter: both lower expenses and lower revenue – Reuters
BofA’s full first quarter earnings release – Bank of America

Servicey
How not to make =SUM errors in Excel – Quartz
Acetaminophen is good for your existential problems – The Awl

Your Daily Outrage
Foreclosure-relief checks are bouncing – NYT

Niche Markets
The cupcake market is crumbling – WSJ

Advanced Strategy
Before the late 1990s, no one used the phrase “business model” – Quartz

Interesting
Seeing a digital rendering of your elderly self makes you save more for retirement – Cass Sunstein

Oxpeckers
The Boston Marathon is in Boston, and other facts the New York Post got right – Vanity Fair
CNN’s 90 minutes of error-strewn reporting – TPM

Billionaire Whimsy
Dan Loeb buys Sandy Weil’s yacht for about $50 million – CNBC

So There
You can blame your parents for why you don’t go to the gym – NYT

Ugly
T Boone Pickens is suing his son for cyberbullying – Forbes

Stuff We’re Not Linking To
The meatpacking district is “in the infancy stages of being gentrified” – NYT

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