Exactly what are the responsibilities of ad driven businesses when it comes to pernicious advertisers? I've been thinking about this for a while in relation to the for-profit college industry, a business I've written about before that's largely a scam driven by access to federal loan programs.
I bumped into this question again the other day while helping put together the website for my partner Charlotta's new venture--a series of painting classes,and by the way, she's a fantastic artist and teacher. Charlotta and I considered advertising them on Google, but guess what? The prices of advertising on anything related to classes or education are sky high. For prominent placement on the searches we wanted in the New York area, in our limited experiments we paid $4.04 per click. Many of those clicks are more or less accidental. That's a lot of money to pay to have someone look at your site.
The leading advertiser we were competing with in the category is a for-profit Florida outfit call Full Sail University. A fascinating analysis by Wordstream rated "classes" as the 17th most expensive keyword category (right above "rehab": what that says, I just don't know") and "degree" as the 8th. What's driving this are the degree mills, and in this Google is not at all untypical. It's a huge ad category in media online and off. not to mention the New York subways, where every other train seems to have been bought by Monroe College.
If investment banks are held responsible for facilitating the subprime loan business, will the media be held responsible for faciliating the subprime education business? I am not sure it should be. But I think much of media as we know it would no longer exist if we (I'm counting myself in the media) had to evaluate the ethics of each advertiser. I do find it striking though that the media, which is rarely short of sanctimony in looking at other industries, conspicuously fails to raise the question.
A note about this blog, by the way: It has stood fallow for a while now, and while I don't plan to restart a general commentary on business issues, I may post a bit more often.
Saturday, September 17, 2011
Monday, November 8, 2010
(Some Of) The Best Of Chumpchanger
Regular readers will have noticed that posts here have been getting rarer, and this seems like an opportune time to declare a semi-official hiatus. Below, some of the better posts of the last two years.
Foreclosure Relief ... For BanksYou might also check out Overcounter.org, my new blog about numbers.
Heck, Who Said New York Was "Livable"?
The Case For More Student Loans
Libertarians And The Contract Fetish
No, It's Not Immoral To Walk Away From That Mortgage
Building The Great Goldman Conspiracy Theory
Seashells In The Trobriands, Fish In Prison, And Fiscal Insanities
Tom Friedman Says It's August 1914. Time To Buy Stocks?
Newsweek's Jingle Mail
Despite all the gloom about Newsweek these days, I was a little skeptical of the idea that a publication with Newsweek's history was quite as unsalvageable as everyone thought. Then I decided to actually look at couple of issues. Not this week's, it's not on the stands yet, and from the website I can't even figure out what's on the cover. Whoa.
One point I've made before is that a "brand" isn't really distinguishable from the underlying product. Once the product has been ravaged, the brand isn't worth anything either. And Newsweek sure looks like it's close to the point of no return. Is it just a coincidence that above the fold the website highlights a slide show of best concession speeches, or is it gallows humor?
Someone--maybe Gawker, I can't find a link--did an admirable job of counting the TV appearances of Newsweek's many well known names. You can do a search on the magazine site if you want to see the work for the magazine of some of those big names and judge for yourself how much attention they devoted to their day jobs. There is still some very good reporting in the magazine, like the science reporting from Sharon Begley.
Someone--maybe Gawker, I can't find a link--did an admirable job of counting the TV appearances of Newsweek's many well known names. You can do a search on the magazine site if you want to see the work for the magazine of some of those big names and judge for yourself how much attention they devoted to their day jobs. There is still some very good reporting in the magazine, like the science reporting from Sharon Begley.
But it's hard not to get the impression that seeing the organization crumbling around them, Newsweek's high priced talent didn't especially bother to hold it up. If anything, the magazine now has the feel of a place that has been abandoned by people who long ago stopped paying their mortgages, and since they were moving out anyway decided to strip the wiring and sell off the kitchen appliances as well.
So Who's Neutral Now?
One story lost amid the flood of election news has been the battle over Google TV. If you missed it, that's forgivable--like a number of Google ventures outside its search and advertising core, Google TV hasn't exactly taken off. And the major networks are doing their best to make sure it doesn't: ABC, NBC and CBS are blocking the Google box from streaming their shows.
What's interesting here is that up to now, the whole debate about "net neutrality" has focused on the prospect of internet service providers--that is, the telcos and cable companies--blocking content providers unless they pay up. Content providers themselves blocking specific devices, though (or service providers, as Comcast did in its negotiations with Fox) changes the game. It seems that down the road, if this continues, the content folks will have a lot of trouble making the case for unfettered access to internet users when they are as guilty of blocking services as anyone. The worst case scenario, of course, if that the biggest players cut deals with the major carriers, and leave new services out in the cold.
What's interesting here is that up to now, the whole debate about "net neutrality" has focused on the prospect of internet service providers--that is, the telcos and cable companies--blocking content providers unless they pay up. Content providers themselves blocking specific devices, though (or service providers, as Comcast did in its negotiations with Fox) changes the game. It seems that down the road, if this continues, the content folks will have a lot of trouble making the case for unfettered access to internet users when they are as guilty of blocking services as anyone. The worst case scenario, of course, if that the biggest players cut deals with the major carriers, and leave new services out in the cold.
Monday, September 27, 2010
The Have-A-Lots Vs The Have-Even-Mores
Despite the financial crisis and the great recession, it has turned out to be surprisingly hard for Democrats to sell the electorate on a populist platform focused on rage against the rich. The reason for this, as I discussed briefly in New York a couple of weeks ago, is that neither party has, or will ever have, a monopoly on populist rhetoric. One man's "monied elite" (the favored targets of Democrats) is easily turned around to become another man's "liberal elite" (the target of Republicans).
The release of new poverty and income data--and the almost simultaneous release of the Forbes 400--have only increased the level of disbelief. Given the incredible increase in the proportion of income going to the wealthy over the last decades--on which Timothy Noah's series in Slate makes an excellent primer--how is it possible that so many voters remain oblivious to this gap?
Look into the numbers more closely, though, and it starts to make more sense. Berkeley economist Emmanuel Saez has very effectively analyzed the increasing share of income at the top, and what's really striking about his data is that it shows that it's not the top half or fifth or even tenth who are getting more of the pie. Essentially the only segment that has seen their share of income rise has been the top 5%, and three quarters of that increase went to the top one percent (price of admission: $341,800 a year) alone. The growing gap is not between haves and have nots. It is really just between the haves and the truly rich.
Most of the public doesn't see a growing gap between their own living standards and those of their neighbors because there isn't one. What they do see is something more abstract: an increasing concentration of wealth and power among the very, very rich--a group that they often associate with the Democrates (something underlined by the generous seeding of the top ranks of the Forbes 400 with liberal leaning billionaires). The Democratic platform promises to keep tax increases to the very top sliver of earners. But the talk of haves and have nots scares the ordinary well off. They seem convinced that a program of income redistribution will ultimately hit not only the really wealthy, who have gained so much in the last years, but the merely well to do, who have not.
The release of new poverty and income data--and the almost simultaneous release of the Forbes 400--have only increased the level of disbelief. Given the incredible increase in the proportion of income going to the wealthy over the last decades--on which Timothy Noah's series in Slate makes an excellent primer--how is it possible that so many voters remain oblivious to this gap?
Look into the numbers more closely, though, and it starts to make more sense. Berkeley economist Emmanuel Saez has very effectively analyzed the increasing share of income at the top, and what's really striking about his data is that it shows that it's not the top half or fifth or even tenth who are getting more of the pie. Essentially the only segment that has seen their share of income rise has been the top 5%, and three quarters of that increase went to the top one percent (price of admission: $341,800 a year) alone. The growing gap is not between haves and have nots. It is really just between the haves and the truly rich.
Most of the public doesn't see a growing gap between their own living standards and those of their neighbors because there isn't one. What they do see is something more abstract: an increasing concentration of wealth and power among the very, very rich--a group that they often associate with the Democrates (something underlined by the generous seeding of the top ranks of the Forbes 400 with liberal leaning billionaires). The Democratic platform promises to keep tax increases to the very top sliver of earners. But the talk of haves and have nots scares the ordinary well off. They seem convinced that a program of income redistribution will ultimately hit not only the really wealthy, who have gained so much in the last years, but the merely well to do, who have not.
Poets, Astrologers, Trotskyites: Citi Thanks You
Do you ever build up enough reward points for the South Seas vacations that fill credit card advertisements? No? Me neither. Magazines, though, are cheap, and some you really wouldn't expect are willing to welcome you as a subscriber for a minimal point expenditure. A few of the lowest cost offerings from Citi’s ThankYou™ Network:
Also available, at rock bottom prices: a broad selection of literary journals, including the Hurricane Review, the Georgetown, and the Oyez Review. Man can’t live by bread alone and all, so it’s good to know that once you’ve maxed out your credit cards, Citi will let you feed your soul with reward points.
(Oh, and yes: that’s a little “tm” up there. Citi’s trademarked “thank you.” But you’re still allowed to say “please.”)
That last is for amateur and professional astrologers—and no, the derivatives desk at Citi doesn’t have a subscription. For just 800 points, you can pick up Australasian Spartacist. The down under Trotskyites might be conspiring with bailed out capitalist bankers, but at least they’re not getting rich that way.China Population Research Newsletter: 300 Points(= .17 x an 1,800 point Terminator action figure)Alberta Genealogical Society Annual Report: 600 points(= .23 x a 2,600 point pink camo pepper spray keychain)Raphael’s Astronomical Ephemeris: 700 points(= .54 x a 1,300 point Hello Kitty baking cup set)
Also available, at rock bottom prices: a broad selection of literary journals, including the Hurricane Review, the Georgetown, and the Oyez Review. Man can’t live by bread alone and all, so it’s good to know that once you’ve maxed out your credit cards, Citi will let you feed your soul with reward points.
(Oh, and yes: that’s a little “tm” up there. Citi’s trademarked “thank you.” But you’re still allowed to say “please.”)
Wednesday, September 8, 2010
Hey Hey Ho Ho, Non-Competes Have Gotta Go
Ex-chief Mark Hurd's agreement with Hewlett Packard, now the subject of a lawsuit in which HP is trying to keep him from moving to competitor Oracle, is a fascinating document. On the one hand, it includes a restriction on transferring trade secrets. On the other, it also says explicitly that given Hurd's position is that the only way he could not bring his knowledge of HP's secrets to a competitor is by not going to work for a competitor at all.
The problem here is that non-compete agreements are meaningless in California, so HP has had to try to work around this by crafting a trade secrets clause that is effectively just a non-compete. That's why I hope--and I assume Hurd and Oracle hope--that the agreement is simply struck down. It looks and acts like a non-compete agreement, so it is one. HP has whined that Hurd was paid millions of dollars in severance to uphold this. Well, too bad. That's the thing about California's ban on non-compete's: it doesn't matter if you were paid a lot to sign it. It's still void. More important, it seems to me that the fact that HP could have drafted a narrower, enforceable trade secrets clause doesn't mean that the courts should uphold this one.They tried to stretch the boundaries of a trade secrets restriction to the point where it becomes a non-compete, and void. I wouldn't encourage this by then letting them have the narrower agreement they should have stuck to in the first place.
A lot of folks will say that they don't really care about this, someone like Hurd makes enough and has enough advisors that he can agree to cut off his arm if he wants. the ban on on-compete clauses, though, is at least as important to mid-level folks. Preventing people from carrying on their trade is against the public interest in any number of ways, and California deserves plaudits for prohibiting this. The ability to move easily between companies is part of the reason for Silicon Valley's success (funny that HP, of all companies, would be trying to this). Interestingly, many "pro-business" states are all too willing to enforce this kind of agreement--a short sighted approach that is good for a few employers in the short term but damaging to the economy in the long run.
PS: As the Hurd agreement shows, companies have tried mightily to replace the verboten non-compete with trade secrets clauses that do the same thing. Some clauses of that kind are necessary--but in general they, too, should be discouraged. Certainly employees shouldn't be allowed to leave with documents, blueprints and the like (the patent system deals with some of this). But I question the value of even a chief executive's general knowledge of future plans. Those tend to change pretty fast--especially after a new CEO comes in.
The problem here is that non-compete agreements are meaningless in California, so HP has had to try to work around this by crafting a trade secrets clause that is effectively just a non-compete. That's why I hope--and I assume Hurd and Oracle hope--that the agreement is simply struck down. It looks and acts like a non-compete agreement, so it is one. HP has whined that Hurd was paid millions of dollars in severance to uphold this. Well, too bad. That's the thing about California's ban on non-compete's: it doesn't matter if you were paid a lot to sign it. It's still void. More important, it seems to me that the fact that HP could have drafted a narrower, enforceable trade secrets clause doesn't mean that the courts should uphold this one.They tried to stretch the boundaries of a trade secrets restriction to the point where it becomes a non-compete, and void. I wouldn't encourage this by then letting them have the narrower agreement they should have stuck to in the first place.
A lot of folks will say that they don't really care about this, someone like Hurd makes enough and has enough advisors that he can agree to cut off his arm if he wants. the ban on on-compete clauses, though, is at least as important to mid-level folks. Preventing people from carrying on their trade is against the public interest in any number of ways, and California deserves plaudits for prohibiting this. The ability to move easily between companies is part of the reason for Silicon Valley's success (funny that HP, of all companies, would be trying to this). Interestingly, many "pro-business" states are all too willing to enforce this kind of agreement--a short sighted approach that is good for a few employers in the short term but damaging to the economy in the long run.
PS: As the Hurd agreement shows, companies have tried mightily to replace the verboten non-compete with trade secrets clauses that do the same thing. Some clauses of that kind are necessary--but in general they, too, should be discouraged. Certainly employees shouldn't be allowed to leave with documents, blueprints and the like (the patent system deals with some of this). But I question the value of even a chief executive's general knowledge of future plans. Those tend to change pretty fast--especially after a new CEO comes in.
Friday, August 27, 2010
Rules Of Deception: Only Test Those Who'll Pass
A bit off topic for this blog, but for anyone who cares about numbers and honesty--and since talking about finance always means digging into numbers, I assume many readers of this blog do--it's worth mentioning my New York Magazine story this week about New York's school test scores and Harlem Village Academy. New York has embarked on an extensive experiment with charter schools. Of these HVA is the most highly hyped--if you want to see just how hyped, there's a helpful slideshow of the key press mention right on the front page of their website.
Harlem Village Academy's story is based on the idea that 100% of it's 8th graders--many low income and underprepared when they start--achieve math proficiency. But of the 66 5th graders in the 2006-7 class, only 19 actually finished 8th grade this year. It's not clear exactly what happens. Many kids are held back, and it's hard to figure out how many ultimately finish.
Especially hard because HVA is not exactly forthcoming with numbers. I tried asking them about four and five year graduation rates. They asked me what my deadline was. Then asked again. And again. It passed. No numbers. All this is relevant to a blog about money because it underlines a few rules of thumb that are relevant to any reporting on the economy: If numbers sound too good, they are. If someone won't give you numbers they should have readily at hand, it's probably because they suck. And if all the effort on someone's website is devoted to showing you high profile press clips with fancy fade in and out effects, run the other way.
Harlem Village Academy's story is based on the idea that 100% of it's 8th graders--many low income and underprepared when they start--achieve math proficiency. But of the 66 5th graders in the 2006-7 class, only 19 actually finished 8th grade this year. It's not clear exactly what happens. Many kids are held back, and it's hard to figure out how many ultimately finish.
Especially hard because HVA is not exactly forthcoming with numbers. I tried asking them about four and five year graduation rates. They asked me what my deadline was. Then asked again. And again. It passed. No numbers. All this is relevant to a blog about money because it underlines a few rules of thumb that are relevant to any reporting on the economy: If numbers sound too good, they are. If someone won't give you numbers they should have readily at hand, it's probably because they suck. And if all the effort on someone's website is devoted to showing you high profile press clips with fancy fade in and out effects, run the other way.
Tuesday, August 24, 2010
If Ben Stiller Was Dead, He'd Be Rolling Over In His Grave
The great promise of the Internet is that it would give original, independent voices an entry to the public that would bypass the gatekeepers of mainstream media. In many ways, that promise is being fulfilled. And there's IndieMoviesOnline.
Billed as a site that would show indie classics like Richard Linklater's Slacker and new independent movies that didn't get a broad release, it's now plugging movies with big named actors--failed, awful movies with big name actors. Some prime examples:
Billed as a site that would show indie classics like Richard Linklater's Slacker and new independent movies that didn't get a broad release, it's now plugging movies with big named actors--failed, awful movies with big name actors. Some prime examples:
Val Kilmer in Stateside (original theatrical gross: $174,31Ben Stiller in The Independent (theatrical gross: $238,431Gabriel Byrne in Killing Emmett Young (straight to video)
Plus National Lampoon's Blackball (theatrical gross $48.000).Yikes. As if we needed more proof that everything we wish would disappear is now condemned to live on forever in online hell.
Through their Twitter feed, the IMO folks told me (sounding a little aggrieved) that National Lampoon's Blackball was indeed independently financed. Point taken. I'll take their word for it that all these movies were made without major studio backing. That doesn't make them--or, for that matter, any of the other independent action movies or Fort Lauderdale Internation Film Festival-winning soft porn works on the site suck any less. It just confirms the suspicion that beyond the vast wasteland of mainstream movies is another wasteland of the sub-mainstream. And maybe that an all too common ambition of "indies" is selling out.
Through their Twitter feed, the IMO folks told me (sounding a little aggrieved) that National Lampoon's Blackball was indeed independently financed. Point taken. I'll take their word for it that all these movies were made without major studio backing. That doesn't make them--or, for that matter, any of the other independent action movies or Fort Lauderdale Internation Film Festival-winning soft porn works on the site suck any less. It just confirms the suspicion that beyond the vast wasteland of mainstream movies is another wasteland of the sub-mainstream. And maybe that an all too common ambition of "indies" is selling out.
If Livestrong Is A "Brand," What About The Red Cross?
Who's gotten the worse part of the deal with Livestrong.com, Lance Armstrong, or Demand Media, the spam-site meisters who own it? Armstrong has essentially rented the name of his foundation to Demand, turning a cancer charity into a third tier health advice "brand." Demand, meanwhile, is just hoping that Armstrong doesn't wind up in court, or worse, over the doping allegations.
One thing that hasn't been mentioned much in the (justified) arrows shot at Demand Media is just how distasteful Deamnd's constant repetitions of the words "Livestrong brand" are. Marketing speak has been taking over the culture for a long time now, and it's time to draw some distinctions here. Genuine non-profits have name recognition, like "brands." But the value of that recognition comes from the fact that their names are associated with public service. Try on for size "the Amnesty International brand."
One thing that hasn't been mentioned much in the (justified) arrows shot at Demand Media is just how distasteful Deamnd's constant repetitions of the words "Livestrong brand" are. Marketing speak has been taking over the culture for a long time now, and it's time to draw some distinctions here. Genuine non-profits have name recognition, like "brands." But the value of that recognition comes from the fact that their names are associated with public service. Try on for size "the Amnesty International brand."
Sticks in your throat doesn't it? That's the rub with the good name that a genuine public interest organization has built built up: it's only worth something as long as it doesn't get sold.
Thursday, August 5, 2010
Foreclosure Relief ... For Banks
Oh, what woe to be a realtor (or a "Realtor," as newspapers that depend on real estate ads like to capitalize it). Every month such rosy predictions, every month so many dashed hopes. This month is yet another with some of the lowest home sales numbers in a decade. Surely this has to turn around soon.
Right. Actually, things could easily be even worse. One story that I wish had run before Slate shut down The Big Money at the end of July was piece about the disaster of foreclosure "aid"--and its de facto beneficiaries. Some critics of foreclosure relief like to paint recipients as lucky duckies. The reality is that half the applicants get rejected for aid, and of those who do get it, a startling two thirds to three quarters won't be able to keep up with their payments and will find themselves facing foreclosure again within a year.
So what does this have to do with the housing market? HAMP, the federal government's main foreclosure relief program, simply stretches out the foreclosure process, extending debtors' slow bleed of resources and encouraging them to keep chasing the hope of staying in their homes until what savings they have are depleted. New Fannie Mae rules make the HAMP process a requirement for getting a mortgage in the future; what was supposed to be help for debtors has turned into a cudgel for lenders.
Banks are already doing their best to stretch out the foreclosure process; the average time from the first default notice to a bank actually taking possession of the house now stretch to more than 400 days. Barry Rithotz calls this "strategic non-foreclosure." Bankers have to hold out the threat of repossession to get as many payments as they can. But to make good on it would mean seizing even more properties and dumping them on a falling market. Yes, it's possible for the housing market to crater even more than it has. Keeping debtors on the treadmill in HAMP hell lets banks prop up the market in the great foreclosure belt. Without it, things would look even worse. As it is, things are bad enough--and since the supply of repossessed properties isn't close to drying up, they'll stay that way for a long time.
Right. Actually, things could easily be even worse. One story that I wish had run before Slate shut down The Big Money at the end of July was piece about the disaster of foreclosure "aid"--and its de facto beneficiaries. Some critics of foreclosure relief like to paint recipients as lucky duckies. The reality is that half the applicants get rejected for aid, and of those who do get it, a startling two thirds to three quarters won't be able to keep up with their payments and will find themselves facing foreclosure again within a year.
So what does this have to do with the housing market? HAMP, the federal government's main foreclosure relief program, simply stretches out the foreclosure process, extending debtors' slow bleed of resources and encouraging them to keep chasing the hope of staying in their homes until what savings they have are depleted. New Fannie Mae rules make the HAMP process a requirement for getting a mortgage in the future; what was supposed to be help for debtors has turned into a cudgel for lenders.
Banks are already doing their best to stretch out the foreclosure process; the average time from the first default notice to a bank actually taking possession of the house now stretch to more than 400 days. Barry Rithotz calls this "strategic non-foreclosure." Bankers have to hold out the threat of repossession to get as many payments as they can. But to make good on it would mean seizing even more properties and dumping them on a falling market. Yes, it's possible for the housing market to crater even more than it has. Keeping debtors on the treadmill in HAMP hell lets banks prop up the market in the great foreclosure belt. Without it, things would look even worse. As it is, things are bad enough--and since the supply of repossessed properties isn't close to drying up, they'll stay that way for a long time.
Saturday, July 31, 2010
"Enron Men Are Sexy"--and Goodbye To The Big Money
In yesterday's story for The Big Money--my last, since the Washington Post just shut down the site--I wrote about the growing club of Enron revisionists (including one former employee who maintains that "Enron men are sexy"--I wish I'd made that the title!). I wrote in that story that I thought the revisionists were pretty far off the mark. Enron's balance sheet was a sham, blessed by accountants whose goal was to issue nonsensical opinions that would justify a preposterously false picture of the business. The notion that people like Ken Lay or Jeff Skilling didn't understand this is nonsense.
Some readers of this blog and my columns may think there's some irony in my slamming Enron apologists; since several times I've come to the defense of Goldman Sachs, aka the Vampire Squid. To this I say, basically, so what? I'm synpathetic to the basic notion that in cases of business disaster (or outsized profits) there is a tendency to search for culprits. I'll even give some leeway to the idea that in some areas the Enron prosecution was troubling (i'm in good company here; former Enron prosecutor John Kroger basically says as much in discussing the decision to indict Andrew Fastow's wife).
But the difference between Enron and Goldman is that Enron systematically went about deceiving its investors. I've seen no evidence that Goldman did anything similar. The company Enron seems to me to resemble much more is Countrywide. The idea that Countrywide's executives could not have understood the subprime scam is to me laughable, and I've always maintained they should be called to account. Yes, I know: investment banks packaged the loans that mortgage lenders like Countrywide made. There is culpability there, too.
Going back to the beginning of this post, I won't spend a long time talking about the end of TBM. I understand why the Washington Post shut it down, and shut it down so abruptly: if you're losing money, why lose money for any extra days? I'm proud of the work I did for them, though, from stories about the culture of Wall Street (and those who hate it), to the investigations of companies like Swoopo.com and Prosper.com, to writing about housing and inflation. And proud to have been part of a great group of regular writers (Heidi N. Moore, Chadwick Matlin, Dan Mitchell, Matt DeBord, others) and editors (Elinor Shields and Jim Ledbetter) who managed to do some terrific work, much of it breaking down traditional divisions between reporting that covers business and reporting about politics and culture.
Some readers of this blog and my columns may think there's some irony in my slamming Enron apologists; since several times I've come to the defense of Goldman Sachs, aka the Vampire Squid. To this I say, basically, so what? I'm synpathetic to the basic notion that in cases of business disaster (or outsized profits) there is a tendency to search for culprits. I'll even give some leeway to the idea that in some areas the Enron prosecution was troubling (i'm in good company here; former Enron prosecutor John Kroger basically says as much in discussing the decision to indict Andrew Fastow's wife).
But the difference between Enron and Goldman is that Enron systematically went about deceiving its investors. I've seen no evidence that Goldman did anything similar. The company Enron seems to me to resemble much more is Countrywide. The idea that Countrywide's executives could not have understood the subprime scam is to me laughable, and I've always maintained they should be called to account. Yes, I know: investment banks packaged the loans that mortgage lenders like Countrywide made. There is culpability there, too.
Going back to the beginning of this post, I won't spend a long time talking about the end of TBM. I understand why the Washington Post shut it down, and shut it down so abruptly: if you're losing money, why lose money for any extra days? I'm proud of the work I did for them, though, from stories about the culture of Wall Street (and those who hate it), to the investigations of companies like Swoopo.com and Prosper.com, to writing about housing and inflation. And proud to have been part of a great group of regular writers (Heidi N. Moore, Chadwick Matlin, Dan Mitchell, Matt DeBord, others) and editors (Elinor Shields and Jim Ledbetter) who managed to do some terrific work, much of it breaking down traditional divisions between reporting that covers business and reporting about politics and culture.
By
Mark Gimein
Tags:
countrywide,
Enron,
goldman sachs,
morality
Friday, July 30, 2010
Economics: "Hard" Doesn't Mean "Right"
A ridiculously belated post, but I've been meaning to write about the debate over Federal Reserve economist Karthik Athreya's essay, "Economics Is Hard. Don't Let Bloggers Tell You Otherwise." Plenty of folks have already (justifiably) criticized the essay for its condescension toward any opinions of non-experts. And the hilariously high bar that Athreya sets for what it takes to be an expert: for Athreya, Paul Krugman pretty clearly doesn't qualify, despite a Nobel Prize. Go figure.
There's one point though that's still worth mentioning (by default, maybe the last word on this, because everyone else has already weighed in): Athreya's take is built on a completely screwed up notion of how science works. For Athreya the main qualification of the experts is that they are able to build and understand "internally consistent" models. He believes that non-experts are not qualified to weigh in on economics because they are incapable of understanding the complicated models involved.
Athreya is trivially right to the extent that, yes, a great deal of nonsense is written about economics--as it is on almost any other subject. But he is spectacularly wrong in his confidence in complex and internally consistent models. The problem is that the complexity and internal consistency of these models doesn't prove they are right. On the contrary, there are plenty of examples of such models in the sciences that have proven to be totally wrong.
The case he makes for expertise in economics could just as easily be made on behalf of early medieval philosophy or pre-Galilean astronomy. Like economics, these too are "hard." They also involved a search for internally consistent models, some of them built on hundreds of years of debate among scholars. Undoubtedly, scholastic philosophers also believed that no one without the proper training was qualified to discuss how many angels could dance on the head of a pin. And early astronomers certainly would have said that it was inmpossible to have a legitimate opinion in their field without a thorough understanding of the mathematical equations that explained the transit of the sun and planets around the earth.
Obviously, those models all turned out to be meaningless. Their internal consistency didn't solve the problem of their false premises. So to with the economic models that Athreya seems to admire. Some of those models, like those purporting to prove the rationality of the market, have turned out to be almost comically misguided. Yet the experts who have invested their careers in building these models continue to cling to them, trying to explain away their empirical failings like early astronomers creating ever more complicated formulas to explain an eclipse without ever considering that it is the earth that revolves around the sun, and not the other way around.
I won't claim to be able to evaluate Krugman as an economist--in any case, I suspect Athreya's beef with him really has more to do with politics than with his ostensible failures as a popularizer of economic theories. As a reader, however, I appreciate Krugman's empiricism. The reality of any science is that it depends on being willing to call out theories that simply don't accord with reality without waiting for a complete and internally consistent model to replace them. Real science does that. Pseudo science pats itself on the back for its facility at facility at learning its own secret language.
There's one point though that's still worth mentioning (by default, maybe the last word on this, because everyone else has already weighed in): Athreya's take is built on a completely screwed up notion of how science works. For Athreya the main qualification of the experts is that they are able to build and understand "internally consistent" models. He believes that non-experts are not qualified to weigh in on economics because they are incapable of understanding the complicated models involved.
Athreya is trivially right to the extent that, yes, a great deal of nonsense is written about economics--as it is on almost any other subject. But he is spectacularly wrong in his confidence in complex and internally consistent models. The problem is that the complexity and internal consistency of these models doesn't prove they are right. On the contrary, there are plenty of examples of such models in the sciences that have proven to be totally wrong.
The case he makes for expertise in economics could just as easily be made on behalf of early medieval philosophy or pre-Galilean astronomy. Like economics, these too are "hard." They also involved a search for internally consistent models, some of them built on hundreds of years of debate among scholars. Undoubtedly, scholastic philosophers also believed that no one without the proper training was qualified to discuss how many angels could dance on the head of a pin. And early astronomers certainly would have said that it was inmpossible to have a legitimate opinion in their field without a thorough understanding of the mathematical equations that explained the transit of the sun and planets around the earth.
Obviously, those models all turned out to be meaningless. Their internal consistency didn't solve the problem of their false premises. So to with the economic models that Athreya seems to admire. Some of those models, like those purporting to prove the rationality of the market, have turned out to be almost comically misguided. Yet the experts who have invested their careers in building these models continue to cling to them, trying to explain away their empirical failings like early astronomers creating ever more complicated formulas to explain an eclipse without ever considering that it is the earth that revolves around the sun, and not the other way around.
I won't claim to be able to evaluate Krugman as an economist--in any case, I suspect Athreya's beef with him really has more to do with politics than with his ostensible failures as a popularizer of economic theories. As a reader, however, I appreciate Krugman's empiricism. The reality of any science is that it depends on being willing to call out theories that simply don't accord with reality without waiting for a complete and internally consistent model to replace them. Real science does that. Pseudo science pats itself on the back for its facility at facility at learning its own secret language.
Friday, July 16, 2010
The SEC's $550 Million Whimper
Okay, so now Goldman has settled with the SEC. Now, it may be "one of the largest securities settlements ever," but it's not much to brag up. Goldman's restitution to clients comes out to $250 million. That's a fraction of the money that the SEC alleged was lost because of Goldman's malfeasance. If the SEC thought they had a strong case, surely they would have demanded that Goldman at least make good the full client losses? So what does that tell you about the case?
Monday, July 12, 2010
So, Do Tea Partiers Pay Their Mortgage?
For the 4th of July, in The Big Money, I wrote about the Boston Tea Party of 1773, and the insight that odd happening--precipitated, believe it or not, by a tax cut--gave into the motivations of today's Tea Partiers. The article was admittedly unsympathetic to the Tea Party cause. I do have some empathy for the overwhelming perception among Tea Partiers that they are being short-changed as others (read: Wall Street) get bailouts paid for with their tax dollars.
But not much. It is difficult for me to get my head around the fact that the Tea Party's most beloved icon and hope, Rand Paul, is more or less insane. Even leaving this aside, though, what bothers me are not, as some folks who wrote to me assume, any deeply held objection to a low tax objection, but the evident hypocrisy of the movement's talk about personal responsiblity.
It seems to me telling that that in this election cycle the very locus of Tea Party support is in Arizona, Nevada, and Florida, states that are the poster children for the housing-driven economic collapse. It is in these states (think of Marco Rubio in Florida or Sharron Angle in Nevada) that the Tea Partiers have essentially unseated the Republican establishment. These are the states in which reckless speculation on housing was effectively a middle class pastime. I've written sympathetically about the plight of underwater mortgage holders, but I have the huge suspicion that many of the folks waving the Tea Party flag now are the same ones who (with plenty of prodding from the banks) used their houses as ATMs not long ago. The economic problems in these states are partly the fault of predatory bankers--but they are also the consequence of titanic irresponsibility among their esteemed citizens.
That irresponsibility I am easily willing to forgive, but not when it is accompanied by the drumbeat of complaints about the federal handouts and taxes. The Tea Partiers in these places have managed to convince themselves that the economic problems they face are all of the federal government's devising, and none of their own. The irony of the Tea Party is that all the talk of fiscal and personal responsibility in practice is code for blaming one's own problems on the supposed irresponsibility of others, whether bankers on Wall Street or migrants crossing the border.
But not much. It is difficult for me to get my head around the fact that the Tea Party's most beloved icon and hope, Rand Paul, is more or less insane. Even leaving this aside, though, what bothers me are not, as some folks who wrote to me assume, any deeply held objection to a low tax objection, but the evident hypocrisy of the movement's talk about personal responsiblity.
It seems to me telling that that in this election cycle the very locus of Tea Party support is in Arizona, Nevada, and Florida, states that are the poster children for the housing-driven economic collapse. It is in these states (think of Marco Rubio in Florida or Sharron Angle in Nevada) that the Tea Partiers have essentially unseated the Republican establishment. These are the states in which reckless speculation on housing was effectively a middle class pastime. I've written sympathetically about the plight of underwater mortgage holders, but I have the huge suspicion that many of the folks waving the Tea Party flag now are the same ones who (with plenty of prodding from the banks) used their houses as ATMs not long ago. The economic problems in these states are partly the fault of predatory bankers--but they are also the consequence of titanic irresponsibility among their esteemed citizens.
That irresponsibility I am easily willing to forgive, but not when it is accompanied by the drumbeat of complaints about the federal handouts and taxes. The Tea Partiers in these places have managed to convince themselves that the economic problems they face are all of the federal government's devising, and none of their own. The irony of the Tea Party is that all the talk of fiscal and personal responsibility in practice is code for blaming one's own problems on the supposed irresponsibility of others, whether bankers on Wall Street or migrants crossing the border.
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