Felix Salmon

I’ve received some great feedback on my post on subsidizing construction loans, especially from Tom Lindmark, who points out that if you want a short-term jobs boost which doesn’t increase U.S. imports very much, then construction is a great area to subsidize. Lindmark cites Mike Mandel in support of his argument, which is always a good sign, but it’s worth noting that Mike kicks off his post by noting that he’s “never been a big fan of home construction as a driver of economic growth”. It’s a cheap high, and the hangover is always brutal.

Meanwhile, commenter winstongator points me to this article from today’s Raleigh News Observer. He does so because Brad Miller specifically singled out Raleigh as a city where new construction was needed. The first line says it all:

Hue, the multicolor building that is the largest condo project ever attempted in downtown Raleigh, closed its sales office without ever selling a unit.

Of course, one 208-unit condo is not necessarily representative of the new-construction market more generally. But its fate does help explain why lenders might be reluctant to throw good money after bad when it comes to construction loans.

Miller, too, emailed with some good points:

Subprime lending was not driven by home ownership; home ownership was the political excuse for it…

Only about ten percent of subprime loans were for the purchase of first homes. More than 70 percent, as I recall, were refinances… and the vast majority of homeowners who got subprime mortgages qualified for prime mortgages…

Oversupply undoubtedly was a result of the bubble in many markets. Of course home builders built like crazy when they could sell houses for much more than houses cost to build. But I suspect that an oversupply of houses is less of a factor in the collapse than is widely assumed…

When we come out of this we’re going to have to reinvent our housing market, by the way. Have you thought much about that?

This is all true; the peak level of home ownership in this country predates the subprime bubble, and the bursting of that bubble can’t credibly be blamed on too much construction.

So if home construction wasn’t to blame for the bubble and bust, and if it’s good for employment, then shouldn’t we encourage it, at least in the short term?

No: the fact is that we’re already plowing far too much in the way of government resources into the housing market. Virtually all mortgages these days are funded by some arm of the government, be it FHA or Fannie Mae or Freddie Mac, and the Fed of course is doing its job too by keeping interest rates at zero, just because the financial system might suffer a massive solvency panic all over again if interest and default rates were to rise again. The housing sector is keeping the government hostage, and the government should be withdrawing from it as much as possible, rather than feeding it even more than it’s doing already.

The difference between Germany and Spain, when you get down to it, is that Germans work for companies which provide goods and services that the rest of the world wants. In doing so, they make good money, which they save up. That’s how they became rich. The Spanish, by contrast, have massive unemployment, and most of the country’s GDP growth in recent years has come from the construction industry. Their main export is tourism, if that counts as an export, and the main way that Spaniards have become rich in recent years is by sitting back and watching the value of their real estate grow exponentially.

The U.S., going forwards, needs to be less like Spain and more like Germany. So let’s not subsidize housing. That way lies fiscal disaster.

Remember the war over whether or not Rupert Murdoch would be able to buy the WSJ from the Bancroft family? Sarah Ellison has written the definitive account of the whole story, and now follows up with a couple of startling quotes from the Bancrofts who opposed the sale:

“I feel blessed it happened when it did,” Christopher Bancroft, a Bancroft heir and former Dow Jones director who campaigned against the deal with Murdoch, told me recently. “I’m glad I didn’t get my way.”…

Even Leslie Hill, a Dow Jones director who opposed the deal so passionately that she resigned her Dow Jones board seat in protest, says she doesn’t regret handing the company over to Murdoch. “Just look at how our family would have fared during the recession,” she told me recently.

It was always clear, of course, that Murdoch was offering the Bancrofts far more than their company was worth. But the family had long said that Dow Jones was not for sale, and before selling out they insisted on putting together safeguards to preserve the WSJ’s independence. Inevitably, those safeguards were ignored by Murdoch, and the paper has swung to the sensationalist right.

But rather than regret the sale to Murdoch, the Bancrofts who opposed the sale now are relieved that they lost. They thought that they were standing up for something more important than money — but now it turns out that money would have turned out to be more important after all. Glad that’s cleared up.

Should banks mark their loans to market? The issue — which flared up briefly at the height of the financial crisis, when everybody was wondering whether many of America’s largest banks were insolvent — is back in the headlines, thanks to FASB’s proposed rule change, which Tracy Alloway calls “mark-to-mayhem”.

Cue the predictable response from the American Bankers’ Association:

If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.

As a curio, before the financial crisis, banks’ fair value numbers were generally above book value. At that point no one really seemed to care about the discrepency, or mark-to-market, for that matter.

It’s not obvious just how much mayhem the proposed rule change would cause, since Businessweek’s Michael Moore says that “changes in the fair value of loans probably wouldn’t show up in banks’ earnings”. But I’m not completely convinced that this is a good idea.

In general, I’m all in favor of transparency in the reports of public companies in general, and banks in particular. So if banks are forced to reveal the true value of their assets, that’s good. But it’s not good if it just results in effective bank runs, where banks with low-value loans found themselves shut out of the repo markets, for example.

It’s certainly true that when any individual bank — like Goldman Sachs, for example — starts marking its assets to market, that imposes a very useful discipline and can help that bank avoid large losses: when the loans start dropping in value, they get dumped sharpish.

But that’s much easier for Goldman Sachs than it is for commercial banks with enormous long-term loan books and valued relationships with their borrowers. What’s more, it would be disastrous if every bank in America started dumping its loans every time they fell in value — given that they would all be sellers rather than buyers, the value of the loans would plunge enormously overnight, and then they really would all be insolvent.

My feeling is that so long this is just an extra reporting requirement, and it doesn’t show up on the income statement or the balance sheet, we’re probably fine. Banks should certainly be marking their loans to market internally, and if they’re doing that it makes sense to ask them to report those marks to their shareholders on a quarterly basis. But there is a real risk here, if those shareholders start to panic when they see the marks.

If you fancy some iPad reading for the Memorial Day weekend, you could do a lot worse than to download this Tellus paper into GoodReader or similar. It’s titled “Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System; the lead author, who writes very clearly and readably, is Joshua Humphreys.

I’m still working my way through the whole thing, but my initial impression is very positive. Humphreys points out in great detail, for instance, the downsides associated with giving university endowments charitable status and allowing them to issue tax-free bonds; I don’t know what happened to the tax which was being mooted a couple of years ago, but maybe it’s time to revisit it, especially since opposition to the idea even back then was so weak.

Humphreys also notes that university endowments in many ways exacerbated the financial crisis, as well as doing great harm to their own university budgets and their local economies. Meanwhile, their governing boards tend to be incredibly conflicted, with more than half a dozen trustees on Dartmouth’s board alone having managed investments for the endowment.

Humphreys has his own axe to grind: a long-time advocate of socially responsible investing, he makes the case that “as long-term investors, colleges and universities have an important stake in the sustainability of both the wider financial system and the broader economies in which they participate. Rather than contributing to systemic risk, endowments should therefore embrace their role as nonprofit stewards of sustainability.”

This makes sense to me, especially if university endowments are going to operate under the umbrella of charitable status. But even if they want to continue to chase absolute returns, it’s clear that the endowment model massively overestimated their appetite for illiquid assets. The idea was that because they’re investing with the longest conceivable time horizon, they can put a lot of their money into highly illiquid investments. But then they got bit by the fact that their universities were naturally likely to fall back on endowment monies at precisely the point at which illiquid markets seize up completely. Endowments should be countercyclical buffers, when it comes to universtity finances, not pro-cyclical exacerbators of financial crises.

And they should also be a lot more transparent than they are. Writes Humphreys:

When reported, school-specific data are nonstandardized, inconsistent, incomplete and fragmentary, and scattered across municipal, state, SEC and IRS filings, incommensurable annual reports, and costly proprietary financial databases unavailable to the general public.

There’s no excuse for this. Let’s force endowments to standardize their public reports, and show, rather than tell, just what their highly-paid employees are doing to deserve all their millions of dollars in remuneration. And let’s force them, too, to spend a lot more time concentrating on liquidity risk management, and to cast a skeptical eye on the amount of leverage that these institutions really need. Humphreys finds, for instance, a 2007article by Geraldine Fabrikant about Jack Meyer, containing this astonishing number:

When Mr. Meyer and his team were at Harvard, the endowment was known for making money by betting on small pricing differences between different kinds of securities.

For example, Mr. Meyer and his team might capitalize on the price difference between new Treasury issues and older ones. And to magnify gains, they would leverage those bets as much as 15 to 1.

That sounds very much like LTCM to me, and I think everybody can agree that we don’t want university endowments to be LTCM. And I’m not sure that it’s at all possible, with hindsight, to justify these kind of salaries:

It’s true that if you want massive returns on your endowment, you’re likely to end up paying massive salaries to the people who manage it. But you’re also likely to start spending future endowment gains you don’t yet have, and end up with a billion-dollar hole in the ground. It’s good for universities to be ambitious. But not if their ambitions expand to the point at which they feel the need to start selling off their own donated art just to keep the lights on.

Ryan Avent sides with me over Matt DeBord on congestion pricing — Sustainable Cities

The townhouse condo apartment bought with Kenneth Starr’s (allegedly) ill-gotten millions — Wellcome Mat

Euroeconomics, explained — Clarke & Dawe

“I have an abiding fear that Felix is right” on online advertising — Kevin Drum

Jack Schofield is leaving the Guardian after 25 years there. I learned what the web was from him — Guardian

Someone’s buying puts on the S&P 500 with a strike at 50. What’s the point? — Kedrosky

Atlantic Media Halts Work on Business Website — Bercovici

Overstock.com’s CEO Unloads Shares While SEC Fiddles — Sam Antar

Is Brad Miller — one of the most financially-sophisticated Congressmen in the House — really sponsoring a bill in which Treasury would provide loan guarantees for homebuilders? Calculated Risk responds as one might imagine:

I thought this was from The Onion … unfortunately it is not.

My feelings were very much with CR’s, but I thought it was at least worth asking Miller what exactly was going on. He pointed me to a letter he wrote to Treasury a year ago, and added this:

Yes, there is a huge overhang of existing housing units in many markets. You may recall that I’ve been very critical of Treasury for not doing much more about foreclosures, which is pushing down housing prices and adding to the overhang in many markets. Total household net worth declined by more than the GDP over about an 18 month period. Much (probably most) of that was the result of the decline in home values. I think that the loss of household net worth has been as much of a factor in economic anxiety as unemployment, and the diminished consumer spending that has resulted is making a strong recovery very difficult.

That is not true in every market. I certainly don’t suggest that we build more timeshares in Las Vegas, which is obviously comically overbuilt, but the apartment vacancy rate in Raleigh is three percent. Regulators are pushing lenders, generally smaller banks, to limit their real estate exposure without much regard to the demand in the specific market. So we’ve gone from indiscriminate lending to indiscriminate refusals to lend, or worse, lenders are calling existing performing loans. The housing industry has led us out of recessions in the past, which is obviously not going to happen this time, but the inability of homebuilders to get acquisition, development and construction loans in markets with a demand for new housing is making the recession much worse. About 16 percent of jobs in the recent past have been in the housing industry. Unemployment in the homebuilding industry is now about 25 percent. The continued high unemployment in that industry is a huge drag on any recovery, and it’s pretty tough on the unemployed.

The bill requires that the loans only be in “viable” markets, which means not comically overbuilt markets. Treasury should be able to tell the difference, and banks need to as well, since the guaranty is capped at 80 percent of the loan.

I am not new to this issue. I am attaching a letter I wrote to Treasury more than a year ago.

So in short, I agree with you that building houses for which there is not a demand does not build real economic strength, but I think building houses for which there is a demand does.

So, that’s the rationale, and there are parts of it which make sense. If banks are as dysfunctional and self-defeating in their relations with homebuilders as they are in their relations with homeowners, then I’m perfectly willing to believe that they’re destroying projects which can and should be perfectly profitable for them — and in the process causing unnecessary unemployment.

But the fact is that the history of government stepping in and telling banks what to do is a sorry one, whether it’s done by outright instruction, in which case the banks tend to lose a lot of money, or whether it’s done through loan guarantees, in which case the government tends to lose a lot of money.

I daresay that there are homebuilders out there who deserve loans they can’t get. But the same is true of other businesses too — businesses which create the vibrant sectors of tomorrow’s economy that ideally we really want to encourage, rather than crowd out. Banks aren’t going to lend more if this bill passes: they’re just going to shunt their lending from non-guaranteed sectors to homebuilding. And that can’t be good for the long-term health of the economy.

As for the unemployment problem, there’s no doubt that we want the people who have lost their jobs in the homebuilding sector to find new jobs as quickly as possible. But do we want those new jobs to be in the homebuilding sector? Not really. If we’re going to encourage job creation, let’s try to do it in areas of the economy which will help drive exports rather than imports, and which underpin a genuinely strong economy.

Remember Art Capital Group’s lawsuit against Annie Leibovitz? It took pains to point out the sophistication of her advisors:

Each of the sophisticated parties were represented by able and sophisticated counsel and financial advisors and the likelihood that certain of the collateral would need to be sold to satisfy Defendants’ obligations under the secured loan agreement again was directly discussed with Ms Leibovitz, Leibovitz’ attorneys and Leibovitz’ financial advisors, Starr & Co.

That was enough for Cityfile to decide that Leibovitz cannot have been duped:

Friends of the photographer suggest that Leibovitz had no idea she was giving up so much when she took out the loan; they also seem to be shifting some of the blame to Ken Starr, the financial adviser who took the photographer on as a client in 2007 and who was also responsible for introducing Leibovitz to Art Capital Group. Pinning the blame on Starr, who boasts an insanely long list of celebrity clients, may be a hard argument to make…

Given the list of people who have entrusted their finances to Starr in the past, Leibovitz’s suggestion she wasn’t adequately briefed on the terms of the loan before signing the papers is a tad suspect. Presumably the accountant has dealt with desperate and slightly clueless celebs in the past. And if her plan to somehow extricate herself from the mess by pinning the blame on Starr, she may have an uphill battle ahead.

Now, however, her defense seems a bit more credible, given that Starr has been arrested and charged with five counts of fraud. The complaint gives a good idea of his sales pitch, and of the sophistication of his clients:

Starr’s clearly the kind of person who pushes “secure investments” which at the same time will grow by five to ten times, to clients who believe him. And he’s also Art Capital’s first line of defense against accusations that they were predatory in their loans to Leibovitz. I’m sure they’re very happy, today, that they’ve exited that particular deal.

John Gapper returns to the subject of newspaper paywalls today, saying that in the UK, Rupert Murdoch’s Times will have to appeal to a narrow elite if it is to succeed online — something Murdoch has never been comfortable doing. Going after a mass audience online is hopeless, he says, in the face of much lower-cost competitors like the Huffington Post:

Mr Murdoch’s News Corp estimates that the marginal revenue from an occasional browser is less than one tenth of a penny a year. Even Group M, the media buying agency of WPP, the advertising group, argues in a research note that the bulk of news surfers are “useless tourists” who not only pay nothing but have little advertising potential.

What Gapper is recommending to Murdoch is the have-your-cake-and-eat-it holy grail of publishing online: set up a paywall, get subscription revenue, and then see your advertising revenue rise at the same time, when media buyers start being able to target your specific subscriber base rather than just chasing “useless tourists”.

The logic here has existed in print publications for years: newspapers with a cover price tend to have higher ad rates than free sheets, because their readership is more affluent and is also more likely to actually read the paper (and see its ads).

But essentially what’s happening here is that advertisers are using willingness to pay for a newspaper as a proxy for all manner of other desirable traits in newspaper readers, just because there’s no other way of really knowing who’s reading what.

Online, however, is different. Newsletters still exist — where one or two people put out a specialist product, charge a lot of money for it, and manage to make a living on subscription revenue alone. But when it comes to bigger news organizations, no one has even come close to covering their editorial costs with online subscription revenues. So while paywalls can turn out to be an important part of a publisher’s online strategy, a lot of their value comes not from direct subscription revenues but rather from the fact that they allow advertisers to target a specific group of people.

So far, so print-like. But the fact is that online there are much more useful and granular ways for an advertiser to work out who they’re targeting, beyond just saying “we want people who are willing to pay to read this publication”. Media buyers evolve slowly, and they’re used to that model, so they’ll stick with it to a certain extent as they migrate their budgets online. But eventually they’re going to realize that if they stick with that outlook, they’re going to lose access to a huge number of high-value consumers. Millions of people are willing to pay for a physical object — a newspaper — but are not willing to pay to read that same newspaper online. It doesn’t make sense that those millions of people are hugely desirable readers when they’re reading a physical newspaper, and hugely desirable readers if they pay to read content online, but are just “useless tourists” if they don’t pay to read content online.

So advertisers, looking to reach a large audience online, are going to have to look past the simple question of whether or not people are paying for content. And they’re going to end up with a much more granular and useful way of working out who’s seeing their ads: social media.

The fact is that if I sign in to a free site using my Twitter login, I’m actually more valuable to advertisers than if I paid to enter that site. That’s because the list of people I follow on Twitter says a huge amount about me, and a smart media-buying organization can target ads at me which are much more narrowly focused than if all they knew about me was that I was paying to read the Times.

We’re not quite there yet. But it seems to me that online publications are making a big mistake if they make subscribers go through a dedicated registration and login process, because the demographic information they can get from that will be less useful and less accurate than if they outsource the reader-identification procedure to Twitter or LinkedIn or Facebook. And people will definitely enjoy an automatically personalized reading experience, where they can see what their Facebook friends are reading and what the people they follow on Twitter are reading.

At that point, they’re not “useless tourists” any more: they’re highly valuable and targetable news consumers. And the question of whether or not they’re paying for their news becomes much less important to advertisers. And, therefore, to publishers as well.

“There is no economic reason for banks to insist on regular capital repayment” — Josh.sg

“Immigration has increased the average wage of Americans modestly in the short-run, and by more over the long-term” — NDN

I do like a good old-fashioned movie review slam. AO Scott vs SATC2 — NYT

“If we like something then we judge it as less risky, and if we don’t like it we judge it as more risky.” — PsyFi

Euro Crisis Dashboard — Inflexionary

Morgan Stanley did its job: it managed to sell 1.5 billion of the government’s shares in Citigroup for a total of $6.2 billion, or just over $4.13 a share. That’s a good price, compared both to today’s close of $3.86 a share and to Treasury’s cost basis of $3.25 per share. Still, there’s another 6.2 billion shares outstanding, which is quite a big overhang, especially now that Citi has admitted stealing from cemeteries, and looks like it’s doing some pretty egregious book-cooking at quarter-end:

Citi refused to comment on these numbers, but they’re big, and they look very bad. And a source involved in selling down Treasury’s stake in the bank seems to have come down with a severe case of bearishness, wondering if Treasury shouldn’t simply offload a massive stake to Qatar at a discount to the market price:

“If we dribble the shares into the market on a secondary basis, that may be the safest [strategy]. But it may not be the most economic. There are a lot of structural headwinds.”

Needless to say, buying bank stocks at the same time as big sovereign wealth funds has not proved to be a winning strategy in recent years.

Citi was trading at $5 a share last month, which means that it’s already seen 22% of its market cap obliterated in the past few weeks. It’s a low-priced and volatile stock which still, inexplicably, hasn’t gone ahead with the reverse stock split that everybody’s been waiting for, and until that happens it’s going to remain a stock for traders rather than investors. If I was at Treasury, I’d be nervous right now: it’s politically very hard for Treasury to sell its stake at any price below $3.25 a share, and the market, as any trader knows, tends to be drawn magnetically to exactly the state of affairs that you least want.

So well done to Morgan Stanley for getting that big initial tranche out the door. Selling the rest of the stake is going to be hard, and it’s going to be nigh-on impossible if Treasury now expects to be able to get $4.13 a share or higher.

Jim Prevor, a self-described “proud finalist for the Gerald Loeb Awards for Distinguished Business and Financial Journalism for work that originated online”, sets me straight on the new blogging award:

There is no Loeb category for blogging. The category is entitled “Online Commentary and Blogging” and the criteria is “excellence in analysis and commentary that originates online” — so if George F. Will decided to give up his Washington Post gig and, instead, post his column online every Tuesday and Thursday — he would be eligible. There is no requirement to have a blog or be a blogger.

The new category is obviously a response to changes in the media whereby many respected publications don’t have the page count to carry all the great stuff they could publish, so they publish it online…

The pieces I was nominated for had nothing to do with the Blog and were three articles, exactly identical in form and substance to the kind I have had published in the print version of The Weekly Standard, except for reasons of space and timeliness, the editor ran them online.

This is, actually, precisely my point. If Prevor’s work is “exactly identical in form and substance” to the kind of stuff that might otherwise have appeared in print, then shouldn’t it be competing with that content, for the Commentary award, rather than being ghettoized in an award which seems to care more about the medium than the message?

Prevor and I agree that he’s no blogger. But here’s the thing: there’s no point in having a whole new award if it’s not for blogging and is just for commentary — there’s a perfectly good commentary award already. If there is going to be a new blog for online content, it should recognize stuff which could only be online. That’s why I thought the award would go to blogs (as opposed to individual blog entries), and would award bloggers (as opposed to someone whose day job is to be the editor of a stable of fresh-food trade mags such as PRODUCE BUSINESS magazine).

Francine McKenna, another finalist for the award, says she believes that the nomination “was a first-attempt to recognize work like mine”. But the fact is that if she doesn’t win, then the award will not go to work like hers. She’s the only full-time blogger on the list, and she’s also the only one of the nominees who is truly independent: her nomination, uniquely of the four, was not submitted on her behalf by an established print publication.

One of the great things about the internet is that it’s a natural home for sites like McKenna’s, which are good at filling niches which print publishers have neither the ability nor the inclination to address. But if the Loebs wanted to create a prize for sites like McKenna’s, they did a very bad job of it, judging by the four finalists.

Matthew DeBord thinks that my Wired article about Charles Komanoff is really all about turning Manhattan into “biketopia”. He couldn’t be more wrong. Yes, Komanoff himself is a big advocate of biking. And yes, at the margin, having less traffic in midtown would help in terms of being able to create more bike lanes. But biking is not a big part of Komanoff’s spreadsheet at all: instead, it’s all about public transit. Buses become free, subways become cheaper, and the overwhelming majority of New Yorkers — the people who get into Manhattan by some means other than private car — become better off.

DeBord thinks that New York is already “transitopia” — but the fact is that its transit system can be improved greatly through the implementation of a congestion charge, which would unsnarl traffic for buses and would provide new money for buses, subways, and local trains.

Debord says that New Yorkers don’t want to get rid of gridlock: “many people have decided that they’d rather live with it than have, for example, Michael Bloomberg tell them when they can and can’t affordably drive into Midtown”, he writes. But check that link: the “many people” in question are, essentially, Shelly Silver and his small band of dysfunctional Albany politicians. It’s worth remembering that it’s already pretty much impossible to affordably drive into Midtown: here, for instance, are the rates posted at my favorite parking garage, across the street from Reuters. All of them are higher than Bloomberg’s proposed congestion charge.

What’s more, there were two big problems with the congestion charge as proposed by Bloomberg. The first was that Manhattanites benefited unduly: since they have many fewer cars, they got all the benefits of faster traffic while bearing only a small proportion of the total fees. Under Komanoff’s plan, Manhattanites — who take the overwhelming majority of yellow-cab journeys — would pay a taxi surcharge, making things more equitable.

The second problem with Bloomberg’s congestion charge is that it didn’t directly benefit most New Yorkers. If they ever drove into Manhattan, they would pay more, but they would never save anything, since the plan didn’t reduce transit fares. Komanoff’s plan of course is very different, and especially benefits residents of Queens and the Bronx who take a lot of buses, which would always be free. (The huge advantage of making buses free is that it eliminates long lines and waits at the farebox.)

DeBord accuses Komanoff, me, and “the other sons of Jane Jacobs” of wanting a “place where we just won’t be able to do the car thing anymore”. That simply isn’t true: Komanoff likes to say that he doesn’t want a car-free New York, he wants a car-fee New York. Yes, we would like to see fewer cars making through-trips through Manhattan without even stopping, and many fewer trucks doing that. Right now, such through trips account for 40% of all car trips in the central business district, which is crazy.

But Komanoff’s plan is most emphatically not about pedestrianizing New York or turning it into some kind of Dutch-style biketopia where cars are all but absent from the city center. It’s just about making life better for all New Yorkers — even the drivers, who no longer need to suffer the frustrations of gridlock, and who can get to their destination in a much more predictable amount of time. There’s a lot of people who would pay good money for that.

According to Matthew Gentzkow and Jesse Shapiro, in a short paper (pdf) they’ve written about the news diets of media figures, about 61.9% of the news I consume is conservative. That makes my news diet more conservative than 78% of internet users, and 88% of media figures.

Michael Lewis, by contrast, gets a 50-50 share of conservative/liberal news, which makes his diet very liberal by both internet and media-figure standards. And Tyler Cowen’s news diet is more liberal still.

I have no idea why I come out so conservative. The paper scores me based on this, which includes nothing more conservative than the FT and the WSJ. Maybe that suffices.

(Via Tyler)

If you’re not a central banker and don’t even know any central bankers, chances are that you’ve never heard of Global Risk Regulator, a trade publication in London. But right now it’s very much worth paying attention to them, because their sources in and around Basel are unsurpassed. And it turns out, reading the cover story from their latest issue — which they’ve been nice enough to put online for free — that the central bankers seem to have the upper hand, right now, in the fight with the bankers.

Basel Committee chairman, Nout Wellink, who is also head of the Dutch central bank, and other regulators, have indicated that they will look closely at aspects of the proposed reforms that are causing most concern to bankers. But those in the industry expecting a delay in designing the regulatory framework, or that the recently-completed impact study would lead to an extensive re-write of the proposals – described by some bankers as “punitive” and “excessively conservative” – look likely to be disappointed.

The author, Melvyn Westlake, also has a handy one-sentence summary of what exactly Basel III is:

The proposed measures – dubbed Basel III – initially issued on December 17, include tighter definitions of Tier 1 capital, the introduction of a leverage ratio, a framework for counter-cyclical capital buffers, measures to limit counterparty credit risk, and short and medium-term quantitative liquidity ratios.

The banks are up in arms about all this, mainly because it will reduce their profitability and return on equity. But they can’t say that, so instead they’re falling back on the trusty old warhorse of “it will decrease lending”. The Basel technocrats, happily, seem unconvinced, although they have gone so far as to commission an official macroeconomic impact assessment to help counter the spin coming from the bank-lobby types at the Institute of International Finance. The IIF, of course, is already pushing as hard as it can:

Although the IIF’s own impact assessment is not yet complete, the Dallara letter says the initial results are “sobering.” They suggest that, “even in a scenario reflecting only the main proposals emerging so far from the Basel Committee – and not other, national initiatives – there would be a significant adverse impact on employment and growth in the US, extending over several years.” There would be a “more substantial effect in the Euro area,” the policy letter suggests, “reflecting the greater relative importance of banks in the region’s economy. Japan, whose banks were not directly involved in the crisis, would also be materially affected by the proposed changes.”

The impacts worldwide would be exacerbated by regulatory changes that go beyond the core Basel proposals, Dallara adds.

The problem is that all this noise coming from the IIF comes with zero credibility, because it’s the IIF’s job to say these things, whether or not they’re true. It’s also worth noting the “significant adverse impact on employment and growth in the U.S.” that the financial sector has already caused, over the past few years. The first order of business has to be to try to prevent that from happening again, even — especially — if it means a lower chance of another debt-fueled bubble. As Westlake puts it:

It is also clear that some modest reduction in growth during upswings in the business cycle would be acceptable to regulators if the proposed capital and liquidity framework also produced greater financial stability. If the cumulative 0.5% to 1.0% reduction in growth estimated by Dutch central bank economists is the price for getting a really resilient banking system, “that price is not too high,” Basel Committee chairman Wellink told the Financial Times newspaper in early May.

Regulators in the U.S. and Britain have expressed similar sentiments.

As a significantly positive financial reform bill makes its way through Congress and towards the president’s desk, then, it seems that there’s a good chance that it will be met with an equally positive set of new regulations coming out of Basel. None of these things is ever perfect, of course. But the big hole in the Senate bill is that it has very little to say on questions such as bank size and capital ratios and liquidity; it seems that Basel III is almost perfectly designed to fill that gap.

JPMC removes its “overweight” rating from National Bank of Greece. How did that work out? — Jeff Matthews

Retail investors are trading options again. This can’t end well — Bloomberg

Max Abelson’s BankSimple profile — NYO

“Nashville has twice as many degree-holders as its population density would predict. Detroit has less than half.” — Extraordinary Observations

What if They Closed 42d Street and Nobody Noticed? — NYT