Felix Salmon

What is Charles Smith thinking? He’s the winemaker at K Vintners, where he makes very expensive wines, and occasionally shares them with bloggers such as Blake Gray. One blog entry on Smith and his wines produced some comments saying that he is more of a wine promoter than an actual winemaker. Smith’s assistant, Andrew Latta, responded in the comments with simplicity and anger:

Charles and I work side by side on these wines. All the vineyard visits, the punch downs, the pressing, the racking and blending must have just been for photo ops.

The comment thread died out within a week, as comment threads are wont to do, and the story would normally end there.

Now, however, Charles Smith has decided to sue the anonymous commenters! I’ve turned the lawsuit into a PDF and put it here, in case you’re interested.

It’s hard enough to sue people for libel when they post under their own name; when they post anonymously, it’s pretty much impossible. Still, Smith is trying: he’s sent a subpoena to Google, who publish the blog, asking for the IP addresses of the commenters in question. And it seems, although it’s not clear, that Google is going to comply with the request.

I doubt that a list of IP addresses is going to help Smith win the suit, or even identify the commenters to the satisfaction of a court of law — but maybe he just wants to find out who left the comments, and has a suspicion which might be confirmed if he gets that data.

From reading the comments on both blog entries, Smith might well be the kind of person who uses the expensive and elaborate tool of a libel suit just to try to find out who’s saying rude things about him on the internet. But if he does think he’s found out who the commenter is, that person is liable to find themselves defending a lawsuit, which is never pleasant or cheap even if you win.

If the person being sued is the person who left the comments, then being sued is itself harsh punishment for what’s little more than mean gossip. And if the person being sued did not leave the comments, then the whole thing could turn out to be extremely unfair indeed.

I do hope that Smith had bothered to read up on the Streisand effect before filing this suit. As Jim Caudill, one of Gray’s commenters, says, this suit is a prime example of how not to handle criticism:

I think counsel for CS failed to mention that this approach will only bring renewed attention to the comments he finds libelous, as this is tweeted and posted and reported on again and again.

Smith would have been much better advised to take the Randall Grahm route, and simply set up a blog of his own. He could use it to respond forcefully to critics, and to show clearly his involvement in making his wines. Instead, he decided to show the world that he’s a thin-skinned bully. Which is certainly not going to make me remotely well-disposed towards his wines.

Thank you, Jonathan Chait, for making an important point about the NYT’s silly story today on the subject of taxes and “the definition of rich”.

The Times article starts off by asking “whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million”, and continues:

Others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000…

In some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.

Let’s put to one side the fraught question of whether a $250,000 income makes you rich. That’s a question of judgment, while there are basic empirical reasons why the NYT’s angle here is fundamentally flawed. As Chait explains:

The main problem with the article is that it presupposes that individuals making $200,000, or couples earning $250,000, will pay higher taxes. They won’t. The tax hike only applies to income over that threshold. When you go from $250,000 to $250,001, you only pay a higher tax rate on that one extra dollar. Your taxes will go up by a few cents. If you earn $300,000, you will pay a slightly higher tax rate on the last $50,000 of your income — less than a couple thousand dollars.

Even people making half a million dollars a year won’t be “taxed at rates similar to those who make $5 million,” because only half their income will be taxed at the top rate.

This actually understates the matter. For one thing, we’re talking taxable income, here — so you can automatically exclude 401(k) contributions, charitable contributions, mortgage-interest payments, and all manner of other deductions.

On top of that, everybody earning more than $250,000 gets the full value of all the tax cuts for everybody earning less than that. Take Chait’s example of someone earning $300,000: they might pay a higher tax rate on the last $50,000 of their income, but they will also pay a lower tax rate on the first $250,000. As a result, their overall tax bill will go down, rather than up.

So when the NYT’s David Kocieniewski starts talking about “many families with income levels near the $250,000 cutoff”, he’s making a serious error. If you’re anywhere near that cutoff, your tax bill is set to go down, even as the tax bills for those millionaires and billionaires are set to go up.

The clear implication of Kocieniewski’s article is that the rich middle classes — “a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school”, say — are going to suffer the same tax hike as millionaires and billionaires. And that simply isn’t true, even if they’re making significantly more than $250,000 between them.

Back in January, the bien-pensant received opinion was that AIG’s stock was worthless, and that the market was delusional in valuing the company at $26 billion. (See, for example, Jonathan Weil, Paul Smalera, and me.) The company’s debts to the US government were just too large, we all said, for there to be anything left over for shareholders.

Does anybody still think that way? The government has now announced that AIG has a plan to repay taxpayers in full, by converting Treasury’s debt to equity and then selling off those shares in a series of stock sales.

Here’s one way of looking at it: there was nothing wrong with the analysis we were doing in January. There was no chance of AIG paying back the government then, and there’s no chance of AIG paying back the government now. But so long as the stock market remains delusional, then people wanting to own AIG’s stock can pay back the government instead. Essentially, the government is taking advantage of the bizarre positive valuation that the stock market is assigning to AIG, and saying that so long as there are people out there willing to think that way, it’s happy to let them take as much AIG risk as they want.

Here’s another way of looking at it: the world has changed over the past nine months, and there’s now significantly more value in AIG than there was in January. The people valuing AIG’s stock at $26 billion weren’t delusional, they were just prescient. And now even the government can see that value. After all, AIG is an insurance company, and insurance companies have enormous amounts of money in the stock and bond markets, and the stock and bond markets have risen a lot this year.

Given the choice, I’d be more inclined towards the first view than the second. But maybe we can split the difference with a third view. A large part of the value of any financial-services company is based in trust. Consider the idea that the value of a company is equal to the last price at which a share was traded, multiplied by the number of shares outstanding. Or the idea that deposits at a bank are “cash”, available to depositors on demand.

Back in January, AIG stock was a crazy speculative bet. But it has now held its value for long enough that it’s reasonable to consider it a genuine store of value — one which the government can actually monetize in a series of stock offerings.

I’m not convinced that the US will ultimately get paid back all the money it lent to AIG — and it certainly won’t be paid back with a level of interest commensurate with the amount of risk involved in the deal. It’s one thing to look at the value of the small number of AIG shares in free circulation; it’s something else entirely to assume that the government will be able to sell tens of billions of dollars’ worth of its own shares at anything like the same level. But it’s certainly worth a try. So long as the stock market continues to place a significant positive value on the company, it would be foolish of the government not to.

Elizabeth Warren isn’t shy about taking sides in the debate between rules-based and principles-based regulation:

In her speech and in an interview earlier in the day, Warren said she hopes to take a more “principles-based approach” to regulation, rather than simply saddling companies with more of what she calls “thou shalt not” rules — which make for burdensome, costly compliance and which banks often start trying to skirt as soon as they are written

“Regulators can make more pronouncements from on high, identifying suspicious practices in the various markets and banning them. Or regulators can layer on more disclosure requirements,” Warren said in her remarks. “But neither restores customer trust.”

Rather, she said, “Let’s measure our success with simple questions” — Can customers understand a product? Do they know the risks? Can they easily figure out what it really costs?

Warren, remember, is a law professor: she knows full well that the main effect of laying down rules is to send a thousand lawyers scurrying to find ways around them. And she’s surely also seen the way in which other regulators — the SEC springs to mind — become overrun by lawyers looking for people breaking rules, rather than regulators trying to ensure a clean and level playing field.

At the same time, principles-based regulation is new to the US, and will be worrying to banks who will never know for sure whether what they’re doing is allowed or not.

Good.

It’s true that a malicious and vengeance-minded principles-based regulator would be capable of wreaking havoc on the banking industry, but the same can be said of a malicious and vengeance-minded rules-based regulator, too.

The fact is that it makes perfect sense for a consumer-protection bureau to regulate from the point of view of the consumer, rather than from the point of view of bank managers. Warren’s simple questions are good ones, and they’re hard to capture with rules. If banks provide valuable products to consumers, then consumers will value them. If, on the other hand, banks create products which are designed to prey on human foibles, then consumers will come to believe, in Warren’s words, that “dealing with banks is like handling snakes – do it long enough and you’ll get bit.”

Ultimately, the Consumer Financial Protection Bureau could prove an important case study for other U.S. regulators thinking about moving to a principles-based approach. Such an approach is hardly sufficient to fend of a crisis, as the UK’s Financial Services Agency can attest. But it probably stands a better chance of doing so than thousands of pages of new rules.

20-page paper on When Microfinance Goes Public — CGAP; see also the blog

Carl Paladino blows up, curses at, nearly fights NYP editor, plus report of a photog with broken ankle — NYDN

“When you have a 10,000-word story, smooth scrolling is not a good option” — AllThingsD

How much is the New Yorker paying Dan Zalewski? — NYO

Steven Davidoff goes into lots of detail today on the close-run fight between Ron Burkle and Leonard Riggio for control of three board seats at Barnes & Noble. It was a nailbiter of a vote, and informed opinion had it that Riggio, B&N’s founder, was going to end up the loser, despite controlling a large chunk of the outstanding shares. After all, the most powerful shareholder advisory firm, Institutional Shareholder Services, favored Burkle — and big investors like Vanguard and BlackRock generally follow ISS’s lead.

This time around, however, they didn’t, which is interesting. But what’s absolutely astonishing, in a vote of this importance, is the pathetic showing from State Street, which controls about 1 million shares, or about 1.75% of the company. In a vote as close as this, that’s a massively important stake, which can easily tip the outcome one way or the other.

State Street somehow came to the conclusion that it wanted to vote for an unholy mixture of the two antagonists: for two of Burkle’s nominees, but against Burkle himself, and against Riggio’s poison-pill plan. It was a vote which would have satisfied no one — had it counted.

But then, just to add an element of utter farce to the proceedings, State Street contrived to vote its shares late, thereby ensuring that none of its votes were counted at all.

If State Street had simply intended to vote for one side or the other, the move could have been some kind of weird schoolyard attempt to curry favor with the winner had the vote gone the other way: State Street could always have said “I did vote for you”, or “I didn’t really vote against you”, or something annoying like that.

But since the attempted vote itself was so lily-livered, this looks to me like simple incompetence.

Maybe a shareholding worth $17 million or so is ultimately just not all that important to a firm the size of State Street. But it’s surely important to Burkle, Riggio, and B&N’s board, and these kind of antics come close to openly mocking the concept of shareholder democracy.

We hear a lot about the obligation that companies have to their shareholders. But equally, large shareholders have an obligation to the companies they own: to take their stake seriously, and not to play silly games by delaying borderline-incomprehensible votes until it’s too late to cast them. If this is how State Street treats the companies it owns, I wouldn’t want to entrust them with my heard-earned savings.

Update: Some good comments here, surrounding State’s Street’s status as a custodian and the difficulties it faces in learning from the shares’ beneficial owners how it should vote. But Davidoff made it sound as though State Street was going to vote all its shares the same way; is that not true? And the delay in voting seems to have been a matter of minutes, rather than days. In any case, it seems to me that voting shares is one of the few things that custodians are expected to do well, and that State Street obviously failed on that front, this time.

The Bloomberg headline is pretty clear, at least by Bloomberg standards: “Fidelity Loses Top Mutual-Fund Spot to Bogle’s Indexing.” The news: Vanguard, the home of passive investing, now has more assets than Fidelity, the home of stock picking.

But this was puzzling:

In the 10 years ended Aug. 31, actively run domestic stock funds returned 0.9 percent a year compared with an annual loss of 2 percent for index funds, data from Chicago-based Morningstar Inc. show. Fidelity’s equity funds returned an average of 2.1 percent a year versus 1.2 percent for Vanguard’s, according to Lipper.

I’d love to learn more about this ten-year outperformance of active funds over passive funds: it’s something I’ve never heard of before. Is there a survivorship bias here? How are the averages calculated?

And then there’s the enormous outperformance between Vanguard’s funds (+1.2 percent, annualized) over index funds (-2% percent, annualized). How is that possible?

Eventually, much lower down the article, a hint appears:

Indexing doesn’t explain all of Vanguard’s success. About 49 percent of the firm’s assets are in actively run funds, Rebecca Katz, a Vanguard spokeswoman, said in a telephone interview.

That shocked me. Jack Bogle’s company has half its AUM in active funds? Wow. I’d love to know how that number has evolved over time, and especially recently. After all, if Vanguard is overtaking Fidelity because people are pouring money into the actively-managed Wellington Fund and similar, that rather undermines the main thesis of the article.

And if Vanguard’s index funds have been losing something on the order of 2 percent a year while its overall performance is +1.2 percent, then that implies its active funds have been outperforming not only the indices but also Fidelity. In other words, what we’re seeing here might not be a move from active to passive, so much as a move from Fidelity’s funds, which were hot in the 80s and 90s, to Vanguard’s actively-managed funds.

In any case, if there’s a shift from active to passive — and I believe that there is — I suspect that it’s going to show up mostly in ETF figures, rather than in a preference for Vanguard funds. Vanguard’s AUM isn’t a good proxy for the popularity of passive strategies in general, partly because it has all those active funds, and partly because it’s a small player in the ETF space.

As for Fidelity, it’s surely still near the beginning of a long, slow decline. The world of fund management moves glacially yet inexorably, and although Fidelity will certainly continue to make billions of dollars in profit for many years to come, its best days are now far behind it. Vanguard’s, too, most likely. The future looks much more like it will belong to shops like Blackrock and Pimco.

(Incidentally, what’s going on with Bloomberg’s SEO and URL management? Check out the web address of the story, and it looks like something very different indeed. Most peculiar.)

It doesn’t matter whether you fly private or whether you fly commercial: you still have to fly from an airport. Which clearly annoys the Obama administration’s top plutocrat, Larry Summers. Justin Fox was in Washington on Tuesday to hear Summers give a speech on the inadequacies of US infrastructure. And he came up with a truly classic example to make his point:

“Compare the quality of our great resorts with the quality of the airports you take off from to visit those great resorts.”

It’s clearly not easy, being Larry Summers. For all his millions, he still needs to travel from A to B, and keeps on finding himself stymied. First of all he lost his Harvard town car and chauffeur when he moved to Washington, and stood out there for demanding a similar car and driver in recompense for not getting the job of Fed chairman.

And now, it seems, the poor chap has to navigate airports fit only for the masses, while making his way to luxury resorts designed to pamper the every whim of the gilded elite.

As an economist, Summers should know that it makes perfect sense for great resorts to spend enormous amounts of energy on the kind of quality he’s talking about: that’s their comparative advantage, the very heart of what they’re selling. Meanwhile, Summers isn’t really even the customer of the airports he’s passing through: the airlines are the customers, and the passengers are the goods being transported. So the airport doesn’t have much in the way of economic incentives to ease Summers’s way.

I’m sure that Summers has encountered lots of shiny new airports in his travels around the world, in comparison to which US airports look decidedly crumbly. But a lot of that is simply a function of age: it’s easy for Chinese airports to be super-modern and efficient, just because they’re brand new. (And have the advantage of very low construction costs.) It’s much harder for Delta’s Marine Air Terminal to be as Summers-friendly: it was built in 1939, long before anybody ever so much as imagined the TSA. (Indeed, it was before the planes which landed there even landed on solid ground: it was designed to service sea planes.) But because the terminal is one end of the Delta Shuttle from National Airport, I’m sure Summers knows it well.

More to the point, a lot of the money spent on shiny new airports around the world is simply wasted, from an economic perspective. National governments, especially in developing countries, like to show off when it comes to the airports where luminaries like Summers arrive. But all that expense isn’t really necessary for the smooth functioning of the airport.

Summers has been a vocal proponent of infrastructure investment, but if his idea of good infrastructure investment is cosmetic airport revamps which give him plusher lounges and colder drinks, then that’s just depressing. The really crucial infrastructure investment is in things like the national electricity grid, or NYC’s Water Tunnel 3 — expensive, yes, but decidedly unglamorous.

So let’s leave the provision of luxury to America’s great resorts, and maybe to the airlines trying to upsell Summers to a first-class seat. When it comes to infrastructure investments, there are much more important priorities.

Dan Ariely had an interesting column in the latest issue of HBR, talking about how Chile forces its citizens to save money and annuitize their pensions:

When employees reach retirement, their savings are converted into annuities. The government auctions off the rights to annuitize retirees in groups of 250,000…

Institutionally, Chile has cracked an age-old problem with annuities. It’s risky business to predict how long people will live, so insurance companies charge a high premium to cover that risk, which makes for an inefficient market. Annuities also suffer from an adverse selection problem… By pooling the risk, the Chilean government makes annuities an attractive business with more competition and better prices. And since everyone is forced to annuitize, the adverse selection problem simply disappears.

This is rather clever, if it’s true. But a Chilean technocrat, Axel Christensen, responded on the HBR website, saying that Ariely misunderstood what he’d been told. The groups of 250,000 are allocated to fund managers, he said, not annuity providers.

At retirement, Chileans may choose between a fixed inflation-adjusted annuity offered by an insurance company or a variable annuity from by the same company that managed their retirement account. It is an individual decision, with no pooling as you stated. The insurance companies have to bid for the contributor´s savings that increases competition, but the system does has its flaws, like the adverse selection you identified.

This doesn’t clear things up a lot: it seems to me that if you have to pick an annuity, then adverse-selection problems are minimized even if there’s no pooling at all. After all, the problem with adverse selection is that people who buy annuities will live longer than people who don’t buy annuities. If everybody buys an annuity, there isn’t a problem.

And when Ariely republished the column on his blog after Christensen had made his comment, the column was unchanged. I don’t know what to make of that: maybe Ariely didn’t see the comment, or he thinks that for some reason it’s unimportant.

Ariely says that schemes like Chile’s wouldn’t go down well in the U.S., where Americans would consider it “heavy-handed and limiting”. I daresay he’s right. But it would be great if there were some way of allowing people to voluntarily commit to annuitizing their pension fund upon retirement. One of the problems with pension funds is that nobody actually needs some big multi-million-dollar nest egg at age 65. What they need, instead, is a healthy income in retirement. But converting a nest egg into an income is non-trivial. You want to maximize your income by spending principal as well as interest, but you also want to make sure you don’t run out of money if you live a long time.

Annuities solve that problem, but they do suffer from adverse selection: people who buy them live longer than people who don’t, and so insurance companies have to make allowances for that. If everybody in a big pool was committed to annuitizing, then the insurance company could ensure that people who died at a younger age would help to subsidize those who live a very long time — as should happen in any good pension system.

This, indeed, is one of the central problems with defined-contribution pensions rather than defined-benefit pensions. When we “save up for retirement”, we’re conflating two things: the savings, on the one hand, and our retirement income, on the other. If we die before we retire, then our retirement income is zero, but the savings are still there, and the only retiree they’re likely to benefit is our spouse, if we have one.

Are there any numbers on the amount of money which is paid in to Social Security against which no benefits are ever drawn? I’d include people working in the U.S. on temporary work visas, here, as well as people who die before retirement while unmarried. On top of that, of course, people who die early in retirement end up taking out of the system much less than they put in. And the benefits of that cross-subsidy accrue to the long-lived, who need money to live on in their 90s and beyond. It’s a humane and sensible system: the living need money more than the dead do.

Off the top of my head, I can’t think of a way of replicating anything like this on a voluntary basis. I could invest my retirement savings in a fund which automatically annuitizes with everybody else in the fund when I turn 65, for instance. But if I get cancer when I’m 64, I’ll surely move those savings into cash instead of meekly accepting a short-lived income.

So the Chilean system of mandating annuitization for certain types of retirement assets makes sense to me, if indeed there is a mandate there. Maybe people could have a choice: they can invest pre-tax dollars in retirement funds which are forced to annuitize, but if they want to retain control over whether or not they annuitize, they have to invest only post-tax dollars.

And then, of course, we’d have to look to see whether the insurance companies actually improved their annuity rates significantly in response to the new mandate. Is there any data from Chile on that? All of this government interference might make sense in theory, but the real world is nearly always much messier.

In which Arrington fails to mention the main reason he sold to AOL (the money) — TechCrunch

An interesting way of making World Bank books freely available online — Issuu

Great streets have many jobs, and moving cars is only one of them — WorldChanging

The recession, in census numbers — Census

DE Shaw Lays Off 150 People. Does this mean Larry Summers won’t get his job back? Or does it mean he costs as much as 150 other employees? — TBI

While John Hempton was uncovering a dodgy Chinese stock on the New York Stock Exchange, Tim Chen of Nerdwallet was looking into a much smaller operation, Anacott Financial.

The company’s home page seems simple and professional enough, although the picture of the credit card doesn’t have a Visa or MasterCard logo on it, which is a bit odd: those logos are slapped on the bottom of the page. After you move on from the home page, things rapidly fall apart, and not just because the company doesn’t seem to be able to spell.

For one thing, if you simply Google their name, the first result is their website; the next three are message boards complaining about them and asking if they’re a scam. The answer, it seems, is yes: there might be no annual fee, but they ask you for $99 upfront, and they’re likely to simply walk away with that $99 and not even send you a card.

Here’s what Chen found out after spending a bit of time on their website:

• Their about us page (screenshot) makes a few claims that we are having trouble verifying.
  • They claim to be 5 years old, with the last web update happening on May 14, 2010, even though their domain was registered on July 29, 2010.
  • They claim to be a member of Deutschland Financial Services, a company with no web presence.
  • Their address matches an office sub-lease space for small businesses listed on this website (screenshot). Their supposed UK office is in a residential area, judging from a snap from Google Earth.
  • Efforts to find their supposed 5 year old consumer loan division also failed, which is odd because their credit card site advertises home improvement loans.
• Their free credit score check page communicates a few undisputable lies.
  • It asks for personal information, including your social security number, then falsely claims to access TransUnion, Equifax, and Expirian to download your FICO score. The page then prints out a random FICO score.
  • This sequence of events is objectively happening based on our analysis of the source code of their “creditscore.php” page. The javascript cycles through “Accessing Expirian Servers….” type text based on a random timer, then generates a random score.
  • You can trigger this sequence without any input data if you navigate directly there using this link. Alternatively, you can fabricate user data and get the same results.
  • We’ve taken screen shots of the sequence – here is a sample shot where they claim to access Expirian and retrieve a score – which is clearly a lie because I put in Jean Claude Van Damme’s name and a bogus SSN, not to mention that it spits out a different socre every time. Any programmer looking at the source code can show you where the number is randomly generated.
• Their “Make a Payment” and “Account Login” pages do not appear to function when you enter fake data, are they on the site just for appearances?
  • The “make a payment” page (screenshot) is coded such that it requires you to fill out BOTH your external credit card and checking account information in order for the form to be submittable, which makes no sense from a user interface perspective – if it were actually intended to be used for processing payments. Once you submit bogus information, the page leads nowhere, not even to a “wrong password” page.
  • The submit button on the “Make a Payment” page says “Submit Your Application” (screenshot)
  • The account login page‘s submit button says “Submit and Check Your Credit Score for Free” (screenshot), and leads nowhere if you put in bogus information.
• Are they trying to bilk the $99 application fee out of people with poor credit?
  • Their terms & conditions page is inconsistent with the bullets on their site. The site says you get the $99 application fee back “After First Payment”. The terms & conditions page (screenshot) says you get the $99 back if you cancel the card “within five days of application date”, which might be difficult because it also says “Please allow for four weeks from date of submission to process a completed application”.
  • The fine print drops a bombshell – you aren’t necessarily going to get approved for the card you applied for – (screenshot). On discussion forums, one person reports receiving a prepaid debit card after an extensive wait. Here are a few examples of affiliates promoting the card using the “approved copy” – a bad credit website, and comparison site CardTrak. This marketing copy is deceptive, because (i) there is a credit check involved based on the fine print, (ii) approval is not guaranteed, for the advertised card.
• Does the credit card even exist? I can’t find any credible reports of people actually receiving the card, and there are circumstantial hints that the card does not even exist.
  • There appears to be an effort to fake a person named “Rossana Laspina” on Yahoo Answers, who claims to have received the card. She has been active on Yahoo Answers exactly 2 weeks at the time of this writing, and has been answering completely random topics in hopes of looking like a real person. The two other users who claim to have received the card, Tish Alvarez and Sharika Torske, have deleted profiles.
  • Yahoo Answers also has other highly suspicious activity, namely all the posts where the “contributor” says the card is a scam have been voted down to the point where Yahoo hides the answer. Meanwhile, other posts have been voted up.
  • This thread has a member who states that they received a prepaid debit card, with a zero balance, despite being promised a credit card based on the credit screen.
  • It’s highly unusual for a credit card not to have a Visa or MC logo on the front.
  • They do not list a card issuing bank, which I’ve never seen before.
• Did they catch BankRate off guard? Google’s cache shows that BankRate previously advertised the card, but 3 weeks later the card has been pulled from the site.

I have enough faith in my readers that I doubt any of you would actually have shipped off $99 to these guys. But still, it would be nice to see them put out of business. In the absence of a Consumer Financial Protection Bureau, what’s the best way to do that? Asking their web host to take down the site would probably just result in it popping up elsewhere.

The Anacott site says that the $99 payment goes through AlliedWallet, which might be a more fruitful line of attack. They seem to be based in London, but I can’t get through on the phone number they provide there. Still, AllliedWallet did recently put out this press release:

Allied Wallet has engaged the Brand Protection Group to persistently monitor its entire merchant portfolio to ensure its clients remain in compliance with all laws, regulations, and card brand guidelines.

I retain some hope, then, that with the help of AlliedWallet and BrandProtection, Anacott Financial might not last long. Still, the underlying scam — not to mention the underlying scamsters — won’t go away.

The solution is simple: If you’re dealing with any company based solely on their web presence, at the very least do a cursory web search on them first. If the first thing you find is a litany of complaints, it’s probably a good idea to avoid that company.

Meredith Whitney has a 600-page report warning of municipal bond defaults. I think she’s right — and I also think she makes a very smart distinction between municipal debt, as in the debt of towns and cities, and state-level debt.

The states are spending 27% more than they’re raising in taxes — but states can and will get bailed out by the federal government, in extremis. Cities, by contrast, are on their own:

Municipalities receive one-third of their revenue from the states. If the states hold back that money for their own stricken budgets, towns and cities won’t have the funds to make their interest payments. “It has to happen,” says Whitney. “The states will secure their own shortfalls, and leave the cities to fend for themselves.” It’s all about inter-dependency, she says, with the federal government aiding the states, and the states funding the last and most vulnerable link, the municipalities.

I’m not sure that interdependency is really the mot juste here: what we’re seeing is good old-fashioned dependency, with cities reliant on states and states reliant on the federal government.

And then, of course, there’s the monolines. Very few cities issue unwrapped bonds, and as a result it’s not the bondholders who are going to be hurt the most here. Instead, it’s the bond insurers. Insurance in general, and bond insurance in particular, is one of those businesses where you can make steady profits year after year until you lose a fortune. So while a lot of people reading Whitney’s report will be looking for clever positions they can put on in the market for municipal credit default swaps, I’d be careful there: the recovery value on defaulted bonds, at least in the first instance, is likely to be 100%, thanks to those bond insurers.

The more lasting effect of widespread defaults will be in the real economy, where public employees and public services will start feeling the pinch of forced austerity. Once you approach default, no one will roll over your debt any more and no one will insure your bonds. So you have to slash your budget: you have no choice. That process has barely begun, in the U.S., and depending on the timing, it could contribute markedly to a bout of deflation or even a double-dip recession. If the first recession had its causes in the nexus of finance and real estate, its follow-up could well be based in local government.

Aviva has a huge new project up online on what it calls Europe’s pension gap: the problem that the continent’s pension systems are inadequate to the needs of an ageing population. Between them, Europe’s pensions systems need extra funding to the tune of a whopping €1.9 trillion a year, it concludes — a sum which is impossible to raise, and which is only growing.

There’s definitely a problem here. But equally it’s a very hard problem to quantify, because the statistical data needed to do so simply doesn’t exist. The Aviva report is based on the assumption that “on average, people need 70% of their pre-retirement income to provide an adequate standard of living in retirement” — but if you try to work out where that number comes from, you rapidly run into a very fuzzy mess.

For one thing, the average seems to encompass a large variation across income groups, with low-income people assumed to need 90% of their pre-retirement income, dropping to just 55% for high-income people.

But more importantly, the number is entirely normative: it’s the amount that the OECD and Aviva reckon that people should target if they want an adequate standard of post-retirement living. It’s not empirical.

In order to come up with solid answers to important questions, we’d ideally need to be able to look at large populations around the world, and measure their pre-tax and post-tax income and consumption levels both before and after retirement. We’d look at what kind of drop-offs in such levels are normal, and what are excessive; we’d ask retired people whether their income is adequate to their needs; and we’d look at how all these things are changing over time.

But in reality, none of this is possible: the statistics simply don’t exist. In Europe, the national statistical offices and tax authorities do give some, conflicting, information on post-retirement income — but only in the UK and Ireland. There are also still pension schemes which are explicitly based on a percentage of final income; that percentage seemed to rise over the 1980s and stay steady over the 1990s before falling back a bit in the 2000s, but even those numbers are hard to pin down with any accuracy.

And then on top of all that are questions which by their nature are unknowable: what are future investment returns going to be? What are future annuity rates going to be? What kind of tax rates will retirees pay in future?

What’s more, by the time that people have a pretty good idea what their final salary is going to be, it’s far too late to set up a retirement plan which will generate x% of it post-retirement. For that, you need to start early — ideally in your 20s, but certainly in your 30s or early 40s — and when you’re at that stage in your career, you have no idea how much you’re going to ultimately end up earning, or how much consumption your future self will consider an adequate standard of living.

Big-picture trends, however, are not good. For one thing, there’s demographics: the population is ageing, which makes it harder for the working population to support the retired population. What’s more, the rate of unencumbered homeownership is falling: people are less likely to own their houses outright at retirement and more likely to still have a substantial mortgage. And on top of that, people are having children later, and child-related expenses can continue right up to, and even after, retirement.

Oh, and did I mention rising medical costs?

Some things don’t change. You’ll probably need a smaller home once you’re retired; you won’t have commuting costs; you certainly won’t need to continue to make pension-fund contributions. And there will be some kind of state pension, too, although its size is uncertain.

But the fact is that all of these factors are so unknown, or unknowable, that to a first-order approximation all we can reasonably do is save as much as possible, and hope for the best. Any retirement planner who tries to work backwards from a fixed sum needed at age 65 is making so many assumptions that the number is almost guaranteed to be meaningless. But that kind of silly exercise is how retirement planners make their money. So it’s not going to stop any time soon.

Why do American hedge funds make so much money? Macroeconomic Resilience reckons that most of it comes, ultimately, from the government:

Just because hedge funds do not directly benefit from a state guarantee doesn’t mean that central bank policy towards the banking sector is irrelevant in determining their returns… the “alpha” that Magnetar generated would likely not have existed if it were not for the skewed incentives faced by bankers which in turn were driven by the rents they could extract from the state guarantees provided to them.

The example of Magnetar merely illustrates a more general principle that is often ignored: the ultimate beneficiary of any economic rent may be far removed from its initial beneficiary.

Essentially, when the government backstops its banking system, rents will end up flowing to some part of the economy, and not necessarily to banks. In the UK, banks are the primary beneficiaries. In Germany, it’s big companies. And in the US, it’s often hedge funds.

If the Magnetar trade is too recondite for you, then consider the case of David Tepper:

In February and March 2009, when consensus had coalesced among market watchers that certain financial institutions were insolvent and would have to be nationalized, triggering a massive sell-off that drove shares of companies like Citigroup and Bank of America into the single digits, Tepper decided to tune out the chatter. After all, the Treasury Department had said it would hold up the banks—why wouldn’t they keep their promise?

That trade made Tepper something over $7.5 billion. In Europe, he would be excoriated as a profiteer: a billionaire using public policy to ratchet up his net worth to ever-more-stratospheric levels. In America, by contrast, he’s a hero, the living embodiment of everything CNBC viewers admire. His big bets are always on the long side: he makes his billions by seeing opportunity and placing huge bets on things turning out well.

It’s un-American to begrudge Tepper his wealth, even if largely because he has a pair of cartoonishly huge and grotesquely veiny brass testicles attached to a plaque in his hedge fund’s offices. Which makes me wonder what the White House economic team thinks of people like Tepper. My guess is that the more politically-minded among them are deeply appalled, even as the Summers and Geithner types reflexively look past the personality and consider him a pure economic actor who at the margin will help to fuel any recovery.

And I wonder, too, what Tepper thinks of them. Does he thank them for his billions? Or are they just another actor in a game he plays better than anybody else? And if he’s the winner of the game, does that make them losers?

Edward Hugh has a must-read overview of the euro crisis as it stands right now: not nearly as panicked as when everybody was concentrated on Greece back in May, yet in many ways worse than that.

Greece still seems certain to default sooner or later, and its bonds are trading at levels very near to those seen in May. Spain has improved a bit — but that tiny improvement seems to have been accompanied by a significant rise in complacency on the part of the government, so it’s unlikely to last long. And both Ireland and Portugal have deteriorated significantly.

Ireland’s debt is trading at worse levels than ever before, its economy is still in recession, and its banking system is a mess; in Portugal, the public deficit is likely to reach 9% of GDP this year, and the country’s debt spreads are also looking distressingly similar to Greece circa April 2010.

Writes Hugh:

Like former US Treasury Secretary Hank Paulson before them, Europe’s leaders, having armed their bazooka may soon need to fire it…

The EuroArea countries could be likened to a group of 16 Alpine climbers scaling the Matterhorn who find themselves tightly roped together in appalling weather conditions. One of the climbers – Greece – has lost his footing and slipped over the edge of a dangerous precipice. As things stand, the other 15 can easily take the strain of holding him dangling there, however uncomfortable it may be for them, but they cannot quite manage to pull their colleague back up again. So, as the day advances, others, wearied by all the effort required, start themselves to slide.

What’s certain is that if you’re going to fire your bazooka anyway, it’s better to fire it earlier rather than later: the cost of a bailout always rises the longer it’s delayed. So why are the ECB’s bond purchases dwindling, and why is the much-vaunted European Financial Stability Facility still surrounded by so many questions? Yves Smith quotes the FT’s Wolfgang Munchau with some worrying math on that front: essentially, the EFSF won’t be able to lend cheap money to struggling countries at all.

In other words, the Eurozone’s bazooka might turn out to be even less effective than Paulson’s was. And if that’s the case, there’s no point in throwing good money after bad at all: it might be easier and cheaper just to slice that Alpine rope at a strategic point and sacrifice a weaker member or two for the sake of keeping everybody else safe.

Of course, slicing the rope would be easier if and when one of the peripheral countries actually wanted to do so — to attempt their own competitive devaluation in the global currency war. The stricter that the Germans are about the conditionality attached to new funds, the likelier that’s going to become.

In any crisis, there comes a point where it’s easier to let things fall apart than it is to keep things together. Given how fractious the European project has always been, and given that the generation of politicians who staked their careers on the European Union has now completely retired from the scene, a breakup would seem to be an inevitability at this point. The only question is when it will happen, and who will go first.