Opinion

Felix Salmon

Counterparties

Felix Salmon
Apr 30, 2011 08:21 UTC

“Recent investments include $3.50 for a controlling stake in the editorial integrity of Forbes.com” — Techcrunch

Sheelah Kolhatkar on Donald Trump — Businessweek

Amazon explains what went wrong with its cloud — Amazon

Why John McCain chose Sarah Palin as his running mate — NYT

First and Second Avenue Redesigns Are a Success — Streetsblog

The guy who wants to buy the Boston Globe has “spent months researching the media business” — Boston

Here Is The Worst Thing Ever Written About The Conflict In Libya Or About Cappuccino — HuffPo

Highly critical report on EPA’s Office of Civil Rights — WaPo

“On pages 5·130 and 6·98, the recipe for Sous Vide Pigeon Offal should call for 150 g of pigeon gizzards” — Modernist Cuisine

Inside The Frick’s Secret Rooms — Gothamist

French planes have started dropping bomb-shaped chunks of concrete in Libya — Atlantic Wire

Old Fashioned In The Rocks — YouTube

Ordinary people getting married — Atlantic

The F.D.I.C.’s Lehman Fantasy — NYT

Steven Boone on the soup kitchens of Toronto and New York — Capital

David Hume’s Tercentenary: So When Do The Celebrations Start? — Bella Caledonia

Why text shouldn’t be laid out in columns for browsers & apps, even tho it’s easier than ever to do so — Subtraction

HuffPo’s huge, must-read piece on the politics of swipe fees — HuffPo

Mathematician rediscovers ‘perfect’ voting system: the random ballot — New Scientist

Citigroup will pay Ben Stein $45k for not giving a speech — Bloomberg

Visa Invests in Mobile Payment Company Square — All Things D

Why the SEC should look at levered ETFs

Felix Salmon
Apr 30, 2011 02:22 UTC

TBT, the ProShares UltraShort 20+ Year US Treasury fund, is an ETF which returns double the daily decline in an index linked to long-dated government bonds. There are 173 million shares of TBT outstanding, which at a price of $35.65 apiece, means that more than $6 billion is tied up in TBT shares. But average daily volume is just 10.7 million shares — which means that the overwhelming majority of TBT shares are not traded on any given day.

The helpful bloggers at Symmetric Info have explained in great detail — here’s Part 1 and Part 2 — why this is bonkers. But suffice to say that no one should ever hold a leveraged ETF overnight. These things are intraday trading vehicles; they’re not medium-term or even short-term investments.

Given how many people are clearly Doing It Wrong when it comes to TBT, I think there’s a strong case for the SEC to step in here and take a very hard look at TBT in particular, and levered ETFs in general. If day-traders want to day-trade using ETFs, that’s fine — and they can bring their own leverage, if they’re so inclined. But ETFs with embedded leverage are clearly being bought by people who aren’t day-traders at all, and who have no business buying these securities. It’s the SEC’s job to protect those people. It should get on the case.

COMMENT

“no one should ever hold a leveraged ETF overnight” may not be true. This article http://ddnum.com/articles/leveragedETFs. php says that the above statement is a myth and that leveraged ETFs CAN be held long term. I would add another qualification to that article: PROVIDED THAT THE VOLATILITY OF THE ETF IS LOW ENOUGH it may be held long term. Indexes have relatively lower volatility than other securities so may be good candidates for long term holding in a leveraged form.

Posted by inoddy | Report as abusive

Adam Lindemann and the game of art

Felix Salmon
Apr 29, 2011 22:40 UTC

Adam Lindemann has replied to my post on art as a game. He makes a number of points worth responding to:

First, your idea of challenging me to buy a work of art that would have no economic value sounds clever but is in fact naïve from many perspectives. The notion that great art can be of no value, or that one should “buy what you like” even if it is worthless, is an opinion often held by those who have no background in art or willingness to learn and appreciate art in its full context.

There’s a bunch of stuff to unpack here. For starters, there’s more to art than great art. Is it possible for great art to have no value? Maybe not — I can see an argument which says that for art to achieve greatness, intrinsic qualities aren’t enough; it also needs a certain amount of institutional support which in turn guarantees that it will have monetary value. And so I suppose a reasonable (if rather puffed-up) answer to my question might have been “I only buy great art, and great art always has value”. But most collectors buy a lot of art, including art which doesn’t aspire to greatness, or art which hasn’t achieved greatness yet and which is awaiting the institutional support which might confer greatness upon it. (This covers, among other things, just about everything by so-called “emerging artists”.)

And of course people should buy what they like. Buying art you don’t like is something done only by schmucks or by dealers — and the latter will never admit it. So the question is only whether people should buy what they like even if it is worthless.

My view here is very much that they should, and I continue to hold that view even if it’s also held by people with no background in art or willingness to appreciate it in its full context. As I said back in December, when I buy art I tend to want to buy unlimited editions or other work with no resale value. Because the art-as-luxury-object game has become completely disconnected, at this point, from the art-as-art game, and has become little more than a pissing match between oligarchs to see who has the largest bankroll.

So I would say that I buy worthless art precisely because I appreciate the full context of expensive art. And that’s simply not something I want to — literally — buy into.

Lindemann continues:

Economic value is how the world recognizes aesthetic, social or historical value in art. The concept that there is something fresh and undiscovered that you alone you would cherish and that no one else would assign any economic value to if they discovered it, too, is idealized and naïve (an object of personal or sentimental value is another matter).

Economic value is one way that the world recognizes aesthetic, social or historical value in art. It’s far from the only way. Indeed, the fact that masterpieces are frequently described as “priceless” is a good indication that there’s much more to art than economic value. Look at the old masters that Jeff Koons is collecting: all of them are cheaper than many of Koons’s own works. Does that mean that the world has officially recognized that a big Koons sculpture has more aesthetic, social and historical value than the old masters in Koons’s collection? No. But a big Koons sculpture is a much more effective way for an oligarch to flaunt his wealth than a smallish Courbet bull. And so it sells for more.

As for worthlessness, I’m not talking about “something fresh and undiscovered that you alone you would cherish and that no one else would assign any economic value to”. Instead, I’m talking about the natural state of 99% of the art which has ever been produced. Much of it is loved; virtually none of it can be sold, whether or not it has aesthetic, social or historical value. Right now, in fact, my family is grappling with the issue of what to do with the substantial body of work of a now-forgotten artist; LACMA has said they would be interested in a donation of a couple of works, which they wouldn’t do if the pieces didn’t have significant value, but there’s no economic value to these paintings in the sense that there’s any kind of a market for them.

I do agree with Lindemann here:

We are all a product of our cultural surroundings and this process begins from the time the doctor cuts the umbilical cord. So there is no fresh and unbiased view of anything, least of all art. The search for the work of art valuable to you and you alone is futile and pointless, art history is a dialogue.

I’m certainly not looking for a work of art valuable to me and me alone. Indeed, I’ve been known, upon buying a piece, to post it and write about it at length — to share my enthusiasm for it with as many people as possible. I’m just being realistic — in the case of all the artists I know personally, the supply of their work is significantly greater than the demand for it. In that context, anybody wanting to buy their work can and should do so in the primary market. These people are constantly trying to find willing buyers, and they’re not having a huge amount of luck; there’s no reason for me to believe that if I put my own piece up for sale then it would easily catch a bid.

Lindemann, of course, moves in different circles. He buys only the work of artists represented by established galleries — the kind of galleries where there’s an implicit promise to buy the work back if you ever tire of it. That’s fine — but if I choose not to play that game, that doesn’t mean I’m looking for art valuable to me and me alone. It just means that I don’t need to know that there’s a secondary-market bid out there before I buy a piece.

Lindemann then admits that he views collecting art as a business:

Next, regarding your complaint that I treat the art business as a game, well, yes and no. As you’ve noted in your blogs, any business is a game of buying or selling, whether stocks, bonds etc… I am a collector, but I am also a businessman…

I couldn’t be more serious about collecting, and you might not feel art is an investment, but there is a lot of money changing hands.

This is a fair point: if buying and selling art is a game, then buying and selling stocks is a game, too. But that kind of mindset — reducing art collecting to the level of stock-market speculation — is exactly what I find distasteful. There is indeed a lot of money changing hands — and Lindemann is indeed a businessman. But when you look at the art world through the eyes of a businessman, something important is lost; for one thing, you stop thinking about art as something to buy, and start thinking about art as something to invest in. Art moves from being a consumption good to being an investment.

When you buy art, you should be looking for something you love. When you buy an investment, you should be looking for something which is going to increase in value over time. Conflating the two helps to persuade people like Lindemann that spending millions of dollars on art is a sensible thing to do. But it also massively reduces the universe of artworks you can choose from, and exacerbates the star system whereby a handful of artists sell for millions of dollars while most struggle to sell anything at all.

Finally, Lindemann says that I’m “mistaken” when I say he can afford to lose millions investing in art, and that I’m attacking his credibility when I call him a plutocrat. He also asked me, in an email, to go light on the personal stuff in my response. So I’ll leave those objections unanswered; they’re not central to our differences in any case.

The main point here is the difference in the way that each of us buys art, and thinks it should be bought. I like to buy work that I love, ideally directly from the artist, with no eye to ever being able to sell it. Adam prefers to buy work which has garnered so much institutional ratification that it can cost him millions of dollars — and even then has significant economic upside potential. He also sells work, when he can do so at a profit — that’s the game he likes to play. It’s a game which reduces something complex and beautiful to a banal P&L. Which means that even as his pieces are selling for enormous sums, they’re being cheapened at the same time.

COMMENT

I like buying art at auction by good artists selling for a lot less than it would sell in a gallery. It does have to appeal to me. Most art isn’t a financial investment at least to the person who buys it from a gallery. A lot of times it is treated like used furniture.

Posted by Judgetoo | Report as abusive

Vericrest Financial: homicidally otiose

Felix Salmon
Apr 29, 2011 18:47 UTC

We’ve heard a fair amount about the human toll of the subprime crisis — although, frankly, not enough. So this story deserves wide play: Manuel Lopez and Christina Garcia, and their 12-year-old son Christian Garcia, died in a grisly fire Monday morning, because the building they lived in was full of illegally built walls which blocked access to the fire escape. Who was responsible for looking after the building and making sure it was up to code? The message I get from the NYT‘s Jim Dwyer is that it’s a Dallas company called Vericrest Financial.

The insouciance of Vericrest, here, is downright breathtaking:

Did Vericrest take care of the building while it was in foreclosure, or even know that it was supposed to?

“Vericrest is not going to comment,” a spokesman said.

The backstory, as pieced together by Dwyer, is that the three-family building at 2321 Prospect Avenue went into strategic default long ago, after the owner, Domingo Cedano, who bought the building with no money down, stopped making his mortgage payments.

Under New York state law, when that happens, and once foreclosure proceedings begin, the lender becomes responsible for the property. In this case, the loan is owned by a trust, Bank of New York Mellon is the trustee, and the bank in turn has hired Vericrest to handle the loans in the trust.

Here’s what Vericrest says about itself:

Vericrest Financial, Inc. is a privately held, premier financial services company primarily engaged in the servicing of residential mortgage and consumer finance loans. Vericrest Financial, Inc. is led by a seasoned team of financial services industry professionals who have over 20 years of experience in working with customers and investors. Our business operations are located in Oklahoma, New Jersey, California and Texas.

Vericrest Financial, Inc. is dedicated to providing superior customer care and maintaining the highest level of quality, integrity and trust that our customers, employees, investors and other business associates expect and deserve. Vericrest Financial, Inc. is regulated by numerous state and federal regulatory agencies and holds the requisite licenses to service mortgage and consumer finance loans and to conduct other aspects of its business in those states where it does business.

It’s fair to assume that Vericrest, as the holder of all the requisite licenses to do what it does in New York state, is indeed cognizant of any legal obligation it had to maintain 2321 Prospect Avenue, since it was “abandoned by the mortgagor but occupied by a tenant.” Assuming that somewhere along the line foreclosure proceedings were initiated, the law is clear:

For the purposes of this section “maintain” shall mean keeping the subject property in a manner that is consistent with the standards set forth in the New York property maintenance code… provided, however, that if the property is occupied by a tenant, then such property must also be maintained in a safe and habitable condition.

What we’re seeing here is a particularly tragic instance of something that has been happening a lot over the course of the subprime crisis — the way in which mortgages, once they become transmogrified into purely financial instruments, lose all connection to real-world buildings and humans. When my credit union makes a mortgage loan, we know the borrower and we know the building and we have relationships there. When Vericrest Financial takes on responsibility for loans in an investment trust, there’s no relationship at all, and there’s precious little incentive for the company to send someone out to the Bronx to find out what it’s responsible for.

If the law was indeed broken by Vericrest in this case, I hope that it and its principals face criminal prosecution. Only that will make these “premier financial services companies” wake up and realize what their real-world responsibilities can mean.

COMMENT

Or if there is no receiver, Vericrest probably would have hired a management company.

Posted by Yahonza | Report as abusive

Jeff Bezos is secure

Felix Salmon
Apr 29, 2011 17:05 UTC

Michelle Leder picks up on an unfortunate bit of English in Amazon’s latest proxy filing, in the discussion of the $1.6 million that the company spent on security for CEO Jeff Bezos:

We provide security for Mr. Bezos, including security in addition to that provided at business facilities and during business-related travel. We believe that all Company-incurred security costs are reasonable and necessary and for the Company’s benefit, and we believe that the amount of the reported security expenses is especially reasonable in light of Mr. Bezos’ low salary and the fact that he has never received any stock-based compensation.

If you read this closely, it’s hard to see any internal consistency here.

First of all, Amazon admits that the $1.6 million is over and above the security which is provided for Bezos at work and “during business-related travel.” I don’t have the imagination to envisage what kind of personal security $1.6 million per year buys, but I wonder whether such expenditure can ever be money well spent.

At some point, security expenses stop making executives safer, and start just making them more paranoid. Nobody ever wants to be the kind of person who sends out staffers a few days in advance when they’ve been invited over somewhere for dinner, just to check out the entrances, exits, and safe rooms. And even fewer people spend their own money on such services. But if your employer is giving you such services “for free,” then it probably gets harder to politely decline the offer — especially when your employer, which is also the company you founded, says that those services are “necessary and for the Company’s benefit.”

But then comes that telling phrase: the $1.6 million, says Amazon, “is especially reasonable in light of Mr. Bezos’ low salary.” This is basically the what-do-you-give-the-man-who-has-everything argument: Bezos neither wants nor needs a regular paycheck or more stock in Amazon, so how are we to compensate him for all the work he does? Spending $1.6 million a year on his security is a way of giving him something he otherwise wouldn’t have, but which is still valuable to him — the perfect gift. Or, in this case, compensation. It’s the Amazon equivalent of the G5 that a grateful Apple board gave Steve Jobs in 2000.

Amazon is saying here, in as many words, that if Bezos were paid the kind of money that most CEOs get paid, it would be much less reasonable for the company to spend $1.6 million a year on his personal security. But it’s hard to say that at the same time as you’re saying that the expenditure is both reasonable and necessary for the company’s benefit: you can’t really have it both ways.

I wonder how long it’s been since Bezos felt free to do something spontaneous, without worrying about the security implications. If Amazon could give him the ability to do that, it would probably be worth much more than $1.6 million to him. But the next time you’re invited round to Jeff’s place, know this: he’s paying a bunch of people a lot of money to consider you a potential risk to his security. Which might be worth bearing in mind before you offer to help with the dishes.

COMMENT

Does anyone know the security company that provides services for Mr. Bezo? i am a Executive Protection agent moving to the seattle area and am looking for employment. Any info would be greatly appreciated

Posted by selflessservice | Report as abusive

Keynes vs Hayek: The ultimate smackdown

Felix Salmon
Apr 28, 2011 19:47 UTC

The long-awaited second round of Keynes vs Hayek is out, and it’s spectacular. As you might imagine from something written by Russ Roberts and funded by the Mercatus Center, Hayek gets the better of the fight — but Keynes gets to make all his best points. And the production values rock.

This is the best macroeconomic debate I’ve ever seen — put your headphones on, enjoy the next ten minutes, and look out for cameos from Ludwig von Mises and Thomas Malthus.

COMMENT

The first minute is kind of dumb, but once the fight starts, this is pure genius.

I had to circulate it immediately to some freinds and family.

Posted by EconWatcher | Report as abusive

The uncanny valley of advertising

Felix Salmon
Apr 28, 2011 09:25 UTC

From an economic point of view, improvements in ad-targeting technology seem as though they’re pretty obviously Pareto-optimal: everybody benefits. Advertisers get to waste fewer of their ad dollars putting messages in front of people they don’t want to reach; publishers get to charge more money; and consumers get to see only things which are germane and relevant to them.

So why is it that many people hate ad targeting, and hate being served targeted ads?

Part of the reason, I think, is just that targeted ads are better at getting our attention than non-targeted ads — but they’re still an unwelcome distraction from whatever it is we’re wanting to read. Most of us have become pretty good at unconsciously ignoring advertising, especially online. (Often I find myself looking hard for a big special report on a website, because it’s presented on the home page in much the same way as an ad might be, and so I ignore it, in much the same way as it’s easy to miss the big letters spelling out continent names on a world map.) Every time there’s an improvement in targeted advertising, it cuts through that wall and annoys us anew before we slowly learn to ignore it over time.

But more generally and more interestingly I wonder whether what we’re seeing here is what you might call the uncanny valley of advertising.

Every so often, we get glimpses of the Holy Grail of advertising: the point at which the advertising message is so perfectly crafted and targeted for the consumer that the consumer doesn’t want to ignore it at all, and prefers it to most media output. (One common slogan found in advertising circles is “every company is a media company”.) American Express has been working this seam for a while, with its custom publishing unit; another example is Red Bull, which produces more extreme-sport content than any dedicated TV production company.

And of course we’re all used to traditional mass-market advertising, which is barely targeted at all: the 30-second spots in popular sitcoms, say, or the Netflix pop-up ads we have to clear out every so often when uncluttering our browser windows.

The former is better than the latter — but in between things get weird. Especially when the targeting is done by keyword-recognition algorithms or cookies placed on your computer by robots which track you across the internet.

You look for a pair of socks online, and then for weeks afterwards you see ads for socks popping up in the most unlikely websites. You mention Palm Springs in an status update, and suddenly ads for weekend getaways in Palm Springs start appearing in your webmail client. Or more distressingly and creepily, after sending a difficult and highly personal email to a close friend, you start seeing ads for abortion service providers.

We all naturally anthropomorphize computers at the best of times, so it’s impossible not to feel, in these cases, that we’re being spied on, and that our most private activities are really not private at all. But I think the emphasis on privacy, in these debates, is misplaced. It’s not like some individual human being out there knows something about me personally that I’d rather they didn’t. And a computer or an algorithm, of course, can’t really know anything at all. But we feel spied on and invaded, because we don’t think of activities like online shopping or social networking or emailing as things we do in public: in fact we would never want to do them in a very public way.

Eventually, advertisers will be able to get much smarter than they are right now, and the ad-serving algorithms will stop being dumb things based on keyword searches, and will start being able to construct a much more well-rounded idea of who we are and what kind of advertising we’re likely to be interested in. At that point, when the ads we see are targeted to us based on much more than the content of our emails or the goods that we shop for online, they probably won’t feel nearly as creepy or intrusive as they do now. But for the time being, a lot of people are going to continue to get freaked out by these ads, and are going to think that the answer is greater “online privacy”. When I’m not really convinced that’s the problem at all.

COMMENT

Hello. My name is Trifon. This information is very useful for me. I found this very difficult and I am grateful to you.
I want to share with you this information:
HEMORRHOIDS or SWOLLEN ANAL VEINS
‘Hemorrhoids’ is the medical term for swollen anal veins within the anal canal … in every day terms, sufferers often refer to this condition as ‘piles’.
But if you are reading this article, then there’s a good chance you already know what hemorrhoids are …. And you are looking for a way to cure them. And know the pain and discomfort of swollen anal veins.
And be assured, you are not alone! Common in both men and women, about half of the population has hemorrhoids by age 50. They are also common among pregnant women as a result of the pressure of the fetus on the abdomen, together with hormonal changes, causing swollen anal veins. These veins are also placed under severe pressure during childbirth. Fortunately, in these instances, the problem is a temporary one.

Posted by Trifon | Report as abusive

Ecuador’s market manipulation: The WikiLeaks cable

Felix Salmon
Apr 28, 2011 02:08 UTC

I’ve posted on the subject of possible Ecuadorean bond-market manipulation in various places over the years, including roubini.com, felixsalmon.com, and portfolio.com as well as reuters.com. So it’s gratifying for me to see the subject come up in an official State Department cable, which has now been published by Ecuador’s El Universo newspaper in conjunction — of course — with WikiLeaks.

Here’s the relevant bit of the cable, was sent in June 2009 by US ambassador Heather Hodges, who has already been expelled from the country in the wake of the release of a different cable.

Market Manipulation?

——————–

3. (SBU) The repurchase of $2.9 billion worth of 2012 and 2030 bonds at a price of 35 cents on the dollar would represent a disbursement of about $1 billion. However, according to official figures, government reserves showed a drop of only $243 million between May 22 and May 29, the time the bond repurchase went through. This amount is much less than would be needed to repurchase the bonds, and lends credence to the widely held belief that the GOE repurchased some of the bonds previously in December 2008, following its report that the debt was illegitimate. An earlier purchase could have given the GOE an advantage by possibly reducing the number of remaining bondholders and their influence. Contacts from the Central Bank confirmed privately that the amount disbursed for the bond repurchase on May 29 was only $305 million.

SBU, here, stands for “sensitive but unclassified”; GOE is government of Ecuador. And the background, here, is the widespread belief that after Ecuador announced its bond default in December 2008, the government used Banco del Pacifico, a large Ecuadorean bank, to start buying bonds at levels above 20 cents on the dollar. That was just high enough that vulture investors didn’t want to amass a large position, but also low enough that buying bonds at 20 cents in the secondary market was a much smarter move than buying them back at 35 cents in the official restructuring.

There’s nothing particularly surprising here — the government’s intervention through Banco del Pacifico has been something of an open secret for a while. But it’s still startling to see it explicitly called “market manipulation” in a State Department cable. And it’s good to see State keeping an eye on such matters, which normally fall more under the purview of Treasury. A government which pulls dubiously-legal stunts like this is not one which can be trusted in diplomatic matters, so it’s good to see State paying attention. Not that they really needed to be told that the Ecuadorean government was prone to shenanigans.

The Black Swan of Cairo

Felix Salmon
Apr 27, 2011 17:59 UTC

Go read the essay by Nassim Taleb and Mark Blythe on “The Black Swan of Cairo” — it does a fantastic job of explaining how tail risk works in geopolitics. I’m reminded of this exchange from the film the title references:

Gil’s Agent: Tom Baxter’s come down off the screen and he’s running around New Jersey!… Nobody knows how it happened, but he’s done it.
Gil Shepherd: How can he do that? It’s not physically possible!
Gil’s Agent: In New Jersey anything can happen.

The point here is that it’s all too easy to confuse the unprecedented with the impossible. There’s a weak form of this fallacy and a strong form: the weak form is seen in US foreign policy, where analysts never expect something which hasn’t happened before. And the strong form is seen in Middle Eastern domestic policy, where repressive authoritarianism is considered a means of preventing revolution, rather than a guarantee that something violently unexpected is sure to happen at some point.

It’s easy to see what this means in theory. Taleb and Blythe write:

Seeking to restrict variability seems to be good policy (who does not prefer stability to chaos?), so it is with very good intentions that policymakers unwittingly increase the risk of major blowups. And it is the same misperception of the properties of natural systems that led to both the economic crisis of 2007-8 and the current turmoil in the Arab world. The policy implications are identical: to make systems robust, all risks must be visible and out in the open — fluctuat nec mergitur (it fluctuates but does not sink) goes the Latin saying.

Just as a robust economic system is one that encourages early failures (the concepts of “fail small” and “fail fast”), the U.S. government should stop supporting dictatorial regimes for the sake of pseudostability and instead allow political noise to rise to the surface. Making an economy robust in the face of business swings requires allowing risk to be visible; the same is true in politics.

And in practice?

Consider that Italy, with its much-maligned “cabinet instability,” is economically and politically stable despite having had more than 60 governments since World War II (indeed, one may say Italy’s stability is because of these switches of government). Similarly, in spite of consistently bad press, Lebanon is a relatively safe bet in terms of how far governments can jump from equilibrium; in spite of all the noise, shifting alliances, and street protests, changes in government there tend to be comparatively mild. For example, a shift in the ruling coalition from Christian parties to Hezbollah is not such a consequential jump in terms of the country’s economic and political stability. Switching equilibrium, with control of the government changing from one party to another, in such systems acts as a shock absorber. Since a single party cannot have total and more than temporary control, the possibility of a large jump in the regime type is constrained…

U.S. policy toward the Middle East has historically, and especially since 9/11, been unduly focused on the repression of any and all political fluctuations in the name of preventing “Islamic fundamentalism” — a trope that Mubarak repeated until his last moments in power and that Libyan leader Muammar al-Qaddafi continues to emphasize today, blaming Osama bin Laden for what has befallen him. This is wrong. The West and its autocratic Arab allies have strengthened Islamic fundamentalists by forcing them underground, and even more so by killing them.

As Jean-Jacques Rousseau put it, “A little bit of agitation gives motivation to the soul, and what really makes the species prosper is not peace so much as freedom.” With freedom comes some unpredictable fluctuation. This is one of life’s packages: there is no freedom without noise — and no stability without volatility.

The problem here, of course, is that when Islamic fundamentalism turns violently murderous, you can’t simply sit back and let it happen on the grounds that there is no stability without volatility. And while Taleb might extol his beloved Lebanon as a “relatively safe” country with “economic and political stability”, it’s unacceptably volatile and dangerous by the standards of most of the rest of us. I’m happy to agree that it’s better to be Lebanon than to be Iran. But I’d like to hope we can significantly improve on both, and help to build a region which has less volatility than Lebanon and less tail risk than, say, Saudi Arabia.

Update: Some readers were having difficulty getting to the article, I’ve changed the link and it should be better now.

COMMENT

“Go read the essay by Nassim Taleb and Mark Blythe on “The Black Swan of Cairo””

Why start a post like this when the essay in question is a premium access article?

Posted by dm1csg | Report as abusive

Art as a game

Felix Salmon
Apr 27, 2011 16:43 UTC

Adam Lindemann and Amalia Dayan make a great couple: they’re both immersed in the upper reaches of the art market, with Adam mostly buying and Amalia mostly selling. I spoke to them at the Artelligence conference — an entire event devoted to the dubious concept of “art as an asset class” — after they presented a slideshow of works which were sold at auction in 1973 and which are worth lots of money today.

Lindemann is a fascinating character: he treats the art world as a game, with the score kept in dollars. And Dayan, of course, is a great enabler — the lesson of looking at the current value of those works sold in 1973, she said, is that “if you buy great, great art, and the right work by the right artist at the right time, you win huge time.”

But of course that argument is fundamentally tautological, since Dayan’s definition of “great, great art” is precisely whatever art is most expensive right now. Similarly, when Dayan says that Picasso and Warhol are “quite consistently good, always,” that statement only really makes sense once you realize that in her mind, “good” is a synonym for “expensive.”

I asked Lindemann for the maximum amount of money he would ever spend on a work of art if he knew its value was going to zero, since I thought that might be a good proxy for the aesthetic value of great art, as opposed to its speculative value. But he was honest enough to tell me that he’d never buy such a work, no matter how cheap it was. When Lindemann collects art, he wants his work to be valuable and important to others — his own aesthetic enjoyment in the work isn’t enough.

There’s a telling back-and-forth at one point in the interview, when I ask Lindemann about late Jasper Johns, and Lindemann starts sneering about the polite, established artist living in Caribbean luxury and selling new paintings for $3.5 million apiece at Matthew Marks. Lindemann’s a provocateur, but when Dayan says, laughing, that now he’s said that “we can not buy anything at Matthew Marks any more,” she’s not entirely joking. The art world is all about building and establishing relationships, and being rude about a major gallerist’s biggest-name artist is never particularly endearing.

And Lindemann’s view of Robert Scull, the collector who sold his collection at that 1973 auction and was pilloried for it, has to be put in the context of Lindemann’s own brush with infamy when he allegedly flipped Jeff Koons’s Hanging Heart back to the gallerist he bought it from for a profit of almost $20 million. (“Our role is against the dealers,” says Lindemann at one point. “We try to get one over on the dealers.”)

Lindemann refuses to comment on the Koons deal specifically, saying only that “I never bought anything I intended to resell” while his wife looks on with a priceless look of skepticism. And he does then admit that he has flipped art in the past. But the bigger message of this interview, I think, is that what we’re seeing here is a plutocrat at play. Lindemann loves buying and selling art — probably more than he loves the art itself. And he can easily afford to lose millions of dollars if a deal goes wrong. It’s a fun game for him. But it does ultimately put the lie to the idea that art is some kind of long-term store of value, rather than a plaything for plutocrats.

COMMENT

What do you think are the biggest mistakes an amateur artist can make to blow there chances with a dealer, or is just how impossible is it for a new artist to break into the market and get recognized. I have noticed that there are quite a few artist, and artworks traded on the high end. How do you as dealers keep from being bored to death seeing the same pieces at auctions all the time. Is their room for some fresh blood.

Posted by Quakerninja | Report as abusive

Where does value lie in a restaurant meal?

Felix Salmon
Apr 26, 2011 22:58 UTC

Joshua David Stein, reviewing Chef’s Table in October on the strength of one visit where he spent his own money, was very unhappy about the restaurant’s rules and how they’re enforced. And now NYT restaurant critic Sam Sifton has delivered his magisterial verdict — not only on the restaurant, but also on Stein:

Multiple meals at the restaurant, as well as interviews with regular customers I was able to track down in my digital Ferragamos, suggest that this criticism may be unwarranted.

In case you need a translation, what Sifton means here is “I ate at Chef’s Table four different times, and I spoke to a bunch of other people who have eaten there, and none of us left with the same bad taste in their mouth that Stein had.” Why does he have to torture his way to a ridiculous “multiple meals suggest” formulation instead?

This isn’t an attempt to avoid the first person, which appears twice in this sentence alone. It’s just bad writing: the “digital Ferragamos” are particularly egregious, but the pompousness of “may be unwarranted” is pretty stunning in its own right.

Not least because, if you read Stein’s piece, his beef with chef Cesar Ramirez clearly was warranted:

I was taking notes in a small black Moleskine notebook under the counter. It wasn’t because I was reviewing your restaurant. (I, like most reviewers, refrain from taking notes during such meals). It was precisely because I had looked forward so ardently to this meal and felt myself so lucky to be there, I didn’t want to forget what I ate. None of the amuses were on the menu and, as noted, what was on the menu was only nominally described…

As I finished the tofu, you approached me. I turned around in my stool, happy to chat, to congratulate you on the triumphs of what we had eaten, happy for a whole range of chef-to-patron interactions. But it wasn’t to be. You leaned in close so I could see every sweaty pore on your shaved head and said, loudly and furiously, “I don’t know where you fucking cook, but you’ll never replicate this. I’ve been watching you disrespect my kitchen all night. You’ll never be able to do what I do.”

It took me a moment to realize you were talking about my note taking. It didn’t register initially because you hadn’t seemed to object when the first two of your three rules were disregarded. Plus, what the fuck?

In that brief interval, my wife interjected, “He doesn’t cook.” It’s true. I’m no good at it.

“I’m sorry, Chef,” I said, shaken. “I didn’t mean to disrespect your kitchen.”

“Why are you taking notes?” you demanded. “That’s some sneaky shit.”

“Well, I’m loving this food and I don’t want to forget it and Ana and I won’t be able to come back and…” “Why not?” “Um,” said Ana, “because we can’t afford it.”

I apologized a couple of times more. You said don’t worry about it and at some point later in the night, as you were walking behind me, you gave me a double squeeze on the shoulder that non-verbally said, “It’s cool.”

I read it that way but Ana—not used to being yelled at in front of an entire restaurant—couldn’t shake the feeling and spent the rest of the meal cresting into tears. We couldn’t make eye contact with that waitress who narc’d us out, we couldn’t make eye contact with you, we couldn’t make eye contact with the Australians who at this point wouldn’t make eye contact with us. And though all we did was stare at the small plates as they continued their sadistically endless procession, all I remember beside “Wagyu Steak, Cheese, Dessert” is desperately wanting to leave.

Now, I’m quite sure that this particular experience didn’t happen to Sifton. (For one thing, he was almost certainly recognized.) But Ramirez ruined Stein’s meal. You don’t do that, if you’re a chef. Especially not when the sin is as minor as wanting to write down some notes about a special meal which you want to remember for a long time. And when the punishment is applied so capriciously: Stein says that no one objected “to one solo diner spending the entirety of her night texting”.

Sifton doesn’t address Stein’s meal directly; instead he just says that the arbitrary rule against taking notes is “perfectly reasonable”, without explaining why.

Sifton’s commenters, none of whom seem to have clicked through to Stein’s piece, are in two minds about this. Some say that a don’t-take-notes rule is profoundly silly, especially when the menu is so truncated and monosyllabic as to be useless as an aide-memoire. Others defend the rule, on the grounds that taking notes alters the sense of theater and the delicate relationship between chef and diner.

Neither Sifton nor his commenters address the real reason why Ramirez’s menu is so short and why he bans photography and note-taking: he’s paranoid about his ideas and recipes being stolen.

Which is insane.

Sifton read Stein’s piece, so he knows why Ramirez is doing what he’s doing. As a result, when he says that Ramirez is being “perfectly reasonable”, one can only conclude that Sifton thinks the chef’s bizarre paranoia makes perfect sense.

Sifton works very closely with his colleague Pete Wells, who pretty much owns the beat of recipes as intellectual property — see this piece from Food & Wine, or this one in the NYT. Some people take the issue of stealing recipes much more seriously than others — and people in the taking-it-seriously camp, says Wells, are exploring two ways to protect their intellectual property: patents and copyright. Nowhere has he so much as hinted that a no-note-taking rule, or shouting at diners who are writing in notebooks, is a remotely sensible approach to the problem, if indeed it’s a problem in the first place.

From an economic perspective, it’s pretty clear that people copying recipes is not a problem. Ramirez’s restaurant is all but impossible to get into; he can and does charge pretty much whatever he likes for a meal. The prix fixe is now up to $165 per person, not including tip and not including wine, either; Ramirez doesn’t have a license yet. Even if a dish or two turned up on a menu elsewhere, there would be no effect on Ramirez’s revenues: he will always seat the same number of diners every night.

And it’s worth dwelling on that $165 price tag for a minute, too. Sifton, who expensed his meals, is unfazed, saying blithely that the price “is either expensive or not, depending on your bank balance, but it is worth the money whatever your answer”. I think he’s wrong about this: if you’re spending north of $200 per person on dinner before having a drop to drink, that’s objectively expensive. If you have a lot of money, you will surely be able to afford it more easily than if you’re in Stein’s situation. But Chef’s Table is undeniably an expensive restaurant.

So what makes Sifton so sure that Chef’s Table is worth the money? The quality of the food is surely part of the answer, but I’m quite sure that the quantity of the food — the fact that you’re eating a 20-course meal — came into Sifton’s consideration as well. Why, divide $200 by 20 courses, and it’s only $10 per course!

The problem with this line of thinking is that for many people, when it comes to restaurant courses, more is less. I’ve had my fair share of multi-course menus; they tend to be found at highly-celebrated restaurants like Alinea, and diners generally have no choice in the matter — it’s all those courses or nothing. Looking back on all those meals, I can remember one or two disasters, as well as some meals where I came away with inchoate memories of lots of delicious and surprising flavors, combinations, and presentations. But the number of actual dishes I can remember is tiny — and pretty much confined to the dishes I wrote something about, or photographed. These long meals tend to be accompanied by a fair amount of wine, and all that alcohol consumption certainly makes remembering individual dishes harder.

The best and most memorable meals I’ve ever had were not gilded multi-course exercises in ego-polishing, but were much simpler fare, cooked to perfection at Gandarias, a pintxo bar in San Sebastian, and at Hook, Line and Sinker, a small fish shack in Pringle Bay, outside Cape Town. Closer to home, I can remember in detail dozens of wonderful meals at Oyster Bar, mostly variations on the general theme of chowder and oysters; while much more elaborate fare at places like Corton, for all that it tastes great at the time, I find myself unable to recall at all.

For me, the determination as to whether a meal is worth the money has to be made on the level of the meal itself, rather than on a sum-of-the-parts basis. I had pretty much a perfect meal at Hook, Line and Sinker, picking grilled fish off a huge platter and pouring myself great local (red!) wine from a bottle in the middle of the rough-hewn table. If there had been more courses and more effort and more beautiful plating, I would not have enjoyed the meal any more, it wouldn’t have been a better meal — and therefore I fail to see how it could possibly have been “worth” more money.

I do appreciate, of course, that producing 20 courses in a row is a difficult and expensive proposition. If you’re going to do that, you have to charge a lot of money — especially when you can’t cross-subsidize yourself with profits on your wine list. I’m all in favor of talented chefs making decent money. And it would be silly for Ramirez to charge less than he does, given what the market will clearly bear. But none of that means that from the diner’s point of view, Ramirez’s meal is worth well over $400 per couple. (Which, if you’re interested, works out at roughly 15% of Brooklyn’s monthly median household income.)

In any case, worth it or not, Ramirez literally can’t lose in the event that someone steals one of his dishes. When an Australian chef named Robin Wickens stole a bunch of recipes from Alinea and started serving them at his restaurant in Melbourne, there were all manner of ethical violations going on — but there was no way in which Alinea’s Grant Achatz was economically harmed. In fact, when the culinary plagiarism was uncovered, he looked like even more of an original genius. Even if a cloned Ramirez dish were to show up in New York, reconstructed, miraculously, from a few scribbled notes, rather than through Wickens’s technique of working for a week in the kitchen and taking detailed photographs, it’s hard to see how that would damage him at all.

In the world of cocktails, things are very different, and copying can cost the inventor real money.

A big part of the problem, according to Freeman and other senior bartenders and mixologists, is the “brand ambassador” model. For those unfamiliar with it, it involves big liquor companies hiring bartenders to act as spokespeople for their brands. The bartender not only acts as an advocate but is also expected to create signature cocktail recipes using the product he or she is pushing. Only, these days, the model is so prevalent that liquor brands will tap just about anybody to be a brand ambassador. Oftentimes, these young bartenders (cheap labor compared to members of the old guard) don’t have the experience required to create their own cocktail recipes. And so they Google a recipe and tweak it, or simply use something they learned from a mentor —a mentor, mind you, who might be too expensive for a liquor company to hire directly.

But unless and until this kind of thing starts happening in the food world, let’s stop worrying about copycats — and, in doing so, let’s loosen up on silly rules designed to make their hypothetical lives that much harder. I can see why you might want to have a quiet word with people going overboard with flash photography or talking on cellphones, if such activity is annoying other diners. But it’s very hard for me to see how Sifton has arrived at the conclusion that Ramirez’s bans — expressions of pure ego on the part of the chef — are “perfectly reasonable” at all, given how silly the motivation behind them is.

COMMENT

@dsquared: Chefs are expendable. Over the past two decades I’ve worked for Ritz Carlton, Westin, Four Seasons & Saint Regis. (I still work for one of those but will refrain from stating which.) One thing I’ve learned: Chefs are expendable. They all know that. They may not like to admit it, but they are. The 19 y/o line cook at my hotel could do what Ramirez is doing. Any of the banquet cooks at my hotel could do what Ramirez is doing. I could do what Ramirez is doing, and I’m not a “chef” per se (although I know how to cook).

I would fire Ramirez, and his replacement would render him forgotten within a month.

Posted by EricVincent | Report as abusive

Counterparties

Felix Salmon
Apr 26, 2011 08:28 UTC

The economics of modeling for Elite Models in Paris — Dis

National Geographic buys Scienceblogs — Retraction Watch (see also Pharyngula)

How can BankAtlantic Bancorp have negative shareholder equity and still be in business? — Crain’s

Wired’s gorgeous-looking web feature on bike messengers — Wired

The Beastie Boys’ new album, streaming online — Beastie Boys

“Before I started working on this article, I thought about trying to set up the interviews by post. I didn’t think about it very long” — LRB

“I did it for fifteen years. Magazine people would say to me, ‘How do you keep up the pace?’ and newspaper people would say, ‘What else do you do?’” — Trillin

I’m a huge fan of Miller-McCune. Long may it surprise and delight! — Romenesko

1,2,3 — YouTube, Ariely, Rhian Salmon

A sucker is born every minute. And many of those suckers are also known as “qualified investors” — Reporter News

COMMENT

The layout and photos of the bike messenger article are fantastic. Really taking advantage of the medium to trumpet the message.

Posted by thispaceforsale | Report as abusive

Why analysts hate putting out sell ratings

Felix Salmon
Apr 25, 2011 23:32 UTC

Herb Greenberg kicked off an interesting discussion today when he said that it took “a lot of guts” for Wedbush Morgan analyst Michael Pachter to go on CNBC today with his bearish view on Netflix, ahead of its earnings announcement this afternoon. David Wilkerson has the details of Pachter’s analysis, complete with the context:

With the stock hovering in the $80 range in April 2010, Pachter downgraded the shares to underperform from perform, with a target price of $73. Even after seeing the stock zoom into the $240s, Pachter is sticking to his rating, and a target price of $80.

That’s a very aggressive price target: Pachter’s saying that Netflix is set to lose more than two-thirds of its value, despite having a subscriber base of some 23 million Americans. But is it really a bold move for Pachter? Does it take a lot of guts for him to say this, and if so, why?

Part of the answer to that question is buried in a market symmetry: the long bias of investors is matched by a bullish bias on the analyst side. Most investors are long-only, and even the ones who go short tend to follow a 120/20 or 130/30 strategy: they nearly always have many more long positions than they have short positions. As a result, the market as a whole is already biased against anybody with a “sell” recommendation.

And when it comes to screamingly-hot stocks like Netflix, that’s even more true. Such stocks tend not to be held as part of a long-term portfolio of diversified names; they’re held by momentum traders who want to buy high and sell higher. These people tend to be pretty emotionally invested in their trade and in the sentiment which is driving it, and they can be quite aggressive towards anybody who might damage that sentiment.

On top of that, Wall Street does have a habit of boiling everything down to a right/wrong duality: if you say that a stock will go down, you’re right if it does, and wrong if it doesn’t. The intelligence of your analysis, or the idea that all these things are probabilistic rather than certain, rarely even gets lip service. This is why you see so much technical analysis on Wall Street: it makes no intellectual sense at all, but it works just as well as — or even better than — fundamentals-based analysis. (Which, admittedly, isn’t saying very much.) And that’s all that matters.

There’s also an inability for anybody to appreciate the difference between “buy/sell” on the one hand, and “long/short” on the other. A “sell” rating is not the same as a recommendation to go short. Selling your NFLX at $250 is a risk-averse move: you’re taking a volatile and overvalued stock, taking what are probably enormous profits, and saying that you’d rather sell too early than too late. Shorting NFLX at $250, by contrast, is a highly risky move which can hurt you very badly indeed. Yet when an analyst says “sell”, everybody starts talking about his “short position”, and saying things like “how’s your Netflix short coming along, Mikey?”.

One thing that’s certain about a “sell” rating, of course, is that it’s going to annoy the management of the company in question. And this is where the distinction comes in between issuing a “sell” rating on a privately-circulated report, on the one hand, and loudly proclaiming your analysis on CNBC, on the other. The television audience isn’t just sophisticated investors: it’s a much broader public than that, and corporate management hates even thinking about the idea that their company is being trashed in front of a huge audience. So if you’re going to present a bearish case on TV, be prepared to lose much if not all of your access to management.

If you make a very public bearish case, on TV, for a very visible consumer stock with lots of name recognition, that’s about as far as you can stick your neck out if you’re an analyst. That’s what Greenberg was referring to: yes, on one level it’s Pachter’s job to have an opinion on Netflix and be willing to be called on it if CNBC calls him up. But it’s easy to see why most analysts try hard never to put themselves in that kind of situation. “Clients will always be pissed if you’re wrong,” Greenberg told me in a short conversation this afternoon. “A long guy against the crowd is a value investor. A short is taking his life in his hands.”

Finally, if Netflix does fall dramatically from here — if Pachter’s call turns out to have marked the very top of the Netflix market — he’s still not going to be a hero. He’s been wrong for long enough, now, that people can just say that he was sure to be right eventually. And they’ll probably credit their own perspicaciousness if they followed Pachter’s advice, rather than giving him the credit he deserves.

So well done to Pachter for sticking to his convictions. I hope he doesn’t expect to gain much from them.

Update: I just got a great email from someone who wishes to remain anonymous:

a. In Pachter’s specific case, he’s been down on Netflix for quite a while, so it’s not exactly a significant amount of courage to go out and keep reiterating it. Whatever bridges there are to burn with a company are already burned by now, and, he’s just at the point of re-re-re-reiterating or capitulating.
b. The incentives for a guy at a (relatively) smaller shop can be a bit different – you make a name for yourself by standing out more. Whereas the bigger-shop guys have more of an incentive to limit how crazy their calls get.
c. From my perspective, there is minimal need for a research analyst to actually get his calls right. The majority of his compensation is driven by how useful he is to institutional clients. Fidelity is not going to outsource their investment decisions to a bank (for the most part), so they don’t really care what your rating or target is. They just want you to know everything there is to know about a company when they call. Some analysts are good stock pickers and they end up at hedge funds eventually. Many successful analysts are not.
d. As an outgrowth of c, I think it can be a disservice to retail investors to put some analysts on tv. They’re better at setting the scene than telling someone who owns a couple hundred shares of a stock what to do with it (setting aside whether that person should be holding/trading individual stocks to begin with).
e. Also, an analyst has to have a rating on every stock he covers. But he might only have a strong opinion on one, or a small handful. Good luck getting that context if you aren’t a paying client.

COMMENT

At the end of the day, the world is 100% net long with itself. Only the exchange rate versus cash changes at the margin.

Posted by DavidMerkel | Report as abusive

The tiny cat-bond market

Felix Salmon
Apr 25, 2011 14:23 UTC

BusinessWeek‘s article on catastrophe bonds’ performance in the wake of the Japanese earthquake reveals, I think, a lot of the miscomprehensions about this market.

The article starts off by bemoaning the fact that “the cat bond market won’t be of much help in covering Japan-related insurance losses,” partly because most of the Japan-related cat bonds were written to cover a catastrophe in Tokyo rather than anywhere in Honshu. It continues:

Insurance companies show no signs of abandoning the cat bonds, even though the market failed to deliver a big payout for the Japan disaster. Reinsurers may need to issue new securities to cover future losses in Japan. Insurers, sure to face higher premiums from their reinsurers, may do the same. Swiss Re, the world’s second-biggest reinsurer, sold $95 million of zero-coupon catastrophe bonds on Mar. 30 through its Sector Re V unit containing loss triggers that include another earthquake in Japan. There is also strong demand from pension funds, which may push up issuance of cat bonds to $6 billion or $7 billion this year, vs. $5 billion in 2010, according to Axa Investment Managers.

I’m going to pass over the repeated incantation of the word “losses” here for another day — suffice, for the time being, to say that payouts aren’t losses. Instead, it’s worth looking at the numbers scattered around the article, which reveals that cat bonds will pay out $300 million as a result of the Japanese earthquake. That’s 18% of the $1.7 billion in Japan-focused cat bond market, and 2.4% of the $12.5 billion in global cat bonds outstanding.

Neither of those numbers seems small to me. Yes, the total insurance payout in the wake of the earthquake and tsuanmi is going to be very large — somewhere in the $20 billion to $30 billion range. But it’s worth putting those numbers in perspective. The catastrophe-insurance business paid out some $43 billion in total in 2010, and about $27 billion in 2009. And net written premiums are running at a rate of about $425 billion a year. Those premiums have to cover property damage even when it isn’t caused by a natural catastrophe, of course. But at the end of last year, cat broker Napco described conditions in the insurance market as “soft,”,\ and said that “the market is now so well capitalized that catastrophe losses would have to total more than $50 billion” before anything much changed in that regard.

The purpose of cat bonds, of course, is to help reinsurers absorb the costs of truly massive insured catastrophes — ones they can’t easily afford to pay out on their own. And while the Japanese earthquake and tsunami caused a lot of economic damage, it was still within the bounds of what insurers reasonably expect to see in any given year on a global basis. So if 2.4% of cat bonds are paying out as a result of the catastrophe, that seems about right to me — insured losses are, after all, a fraction of what they would be if the earthquake had hit Tokyo, or if a hurricane hit Miami.

And in the context of those $425 billion a year in insurance premiums, cat-bond issuance of $6 billion or $7 billion this year is a drop in the bucket. I’m reminded of the optimism I saw three years ago at the Milken Global Conference, after a record $7 billion of cat bonds were issued: everybody agreed that the number was still tiny, but there was a lot of hope that it would rise fast. Instead, it fell dramatically in 2008 and then again in 2009; after a modest recovery in 2010, the best hope for 2011 was that more bonds would be issued than were actually maturing.

The fact is that catastrophe bonds are the capital-markets security of the future, and they always will be: insurers will always accept lower returns on their capital than the kind of ROI that hedge-fund cat-bond buyers are looking for. And as I mentioned back in 2008, beyond that there’s a fundamental, endemic reason why cat bonds won’t take off: the difference between parametric risk and indemnity risk.

Bond investors want to pay out based on science: magnitude of earthquakes as measured by the modified Mercalli scale; hurricanes as measured by wind speed and the like. Insurers and insured, by contrast, want their payouts based on losses. The basis risk between the two is large: Everybody can think of large losses from relatively small events, or small losses from relatively large events. And it’s not easy how that basis risk can be reduced. Unless and until that gap can be bridged, catastrophe insurance will remain the domain of the insurance industry. And the bond markets will only be involved at the very margin.

COMMENT

Good Post!
This is a good video on Cat Bonds
http://vimeo.com/21122084

Posted by Besanson | Report as abusive

Counterparties

Felix Salmon
Apr 25, 2011 07:28 UTC

An aerial-photography history of Chicago, 1985 to 2010 — Chicago Tribune

Burkhard Bilger’s profile of David Eagleman is one of the great magazine articles of all time — TNY

“The weak form of Arrow’s Theorem is that any result can be published no more than five times. The strong form is that every result will be published five times.” — Gelman

The hateful Jonathan Franzen — FS

“Things White People Like” should really be renamed “Things Mac People Like” — Hunchblog

Is the NYT paywall a strategic move in peacetime or a tactical move in wartime? — Ben’s blog

“The proper effect of philosophy is to make people exquisitely alert to their assumptions, sensitive to the rigor of their analyses, and—truth be told—permanently uncomfortable about the validity of their conclusions.” — TED

Scrabble, explained — Dinosaur Comics

Agency theory of nonprofits — Guan

Getting Shot by an RPG: My first reflection on conflict photography — Sebastian Meyer

Sebastian Junger Remembers Tim Hetherington — VF

Vancouver Bubble Watch: 25-Person Bidding War — Kedrosky

Wherein the World Economic Forum goes beyond parody — Tumblr

Banking Groups Stir Consumer Fears on Debit Card Regulations via Twitter — ProPublica

COMMENT

David, I am unabashedly Catholic (by choice, as an adult, not by upbringing).

One of the pieces that set me along this path was “The Great Divorce” by CS Lewis. Even to an agnostic (at least to one of Christian background), there was visible truth in the attitudes and principles expressed in this book.

Naturally much of the rest depends on faith and faith alone.

Posted by TFF | Report as abusive
  •