Author: Felix Salmon

If you’re snowed in this weekend, I can highly recommend Moe Tkacik’s monster essay reviewing most of the foremost recent crisis books. It’s 8,000 words long, but it’s worth it: Moe put a lot of effort and feeling into this piece, and it shows. For instance, here she is on Gillian Tett, and her glorification of the people who invented the synthetic collateralized debt obligation:

Not content with her own seventy-odd uses of the word “innovation” and its variations over the course of 253 pages, Tett herself likens the team’s invention to “splitting the atom,” “cracking the DNA code”, “the banking equivalent of space travel” and the “financial equivalent of the Holy Grail.” Blythe Masters, a posh 25-yearold who would over the next few months take credit for inventing the credit default swap, would rave later that the concoction of sophisticated new “products” appealed to her not only because of her quantitative background, “but they are also so creative.” And finally: “I’ve known people who worked for the Manhattan Project, and for those of us on that trip there was that same kind of feeling at being present at the creation.”

And here she is on Neel Kashkari:

Former deputy Treasury Secretary Neel Kashkari, when in high school, filled most of his senior yearbook page with a large photo of a Ferrari, superimposing a picture of himself and assorted heavy metal lyrics. Recognition of the disaster’s potential magnitude did not convert to concern, however; according to David Wessel’s book, In Fed We Trust, in early 2008 Kashkari jestingly likened it to the Iran hostage crisis that consumed the 1980 election year, advising colleagues that mortgages, like hostages, were a problem for the “next president.” (A slightly different account in Too Big To Fail has Kashkari reversing this stance, urging Paulson to start lobbying to use federal funds to bail out the mortgage market lest the history books accord Obama all the credit for “bringing home the hostages.” I’m not sure which story makes Kashkari look like a bigger douchebag.)

Tkacik’s review comes from The Baffler, a truly wonderful magazine which you should find and buy; the current issue’s trenchantly leftist take on the financial crisis provides a refreshingly fresh perspective on a subject which can too easily feel very tired. And it has 5,300 words on Thomas Kinkade, too! What’s not to love?

Brett Arends is in London, and, like most visitors, is shocked at the prices for everything from taxis to houses.

If London real estate is buoyed by the uniqueness of the town’s economy, there is a disturbing degree to which the reverse is also true. This is a ridiculously expensive city to visit. I seem to hemorrhage money with every step I take. I was wondering, as I got out of a taxi the other night and severed the requisite two limbs to pay the fare, how I ever afforded to live here all those years.

The answer is, I couldn’t—even though I earned a perfectly good salary. What made a difference was the money I made on my apartment, which doubled in value between 1997 and 2003. Two years after I sold it, in 2005, it had nearly doubled again. Remove this alchemy from the equation of ordinary Londoners, and the bars and restaurants and theaters would be a lot emptier.

It’s not clear to me how living in an appreciating apartment makes it easier to spend money on bars and restaurants and theaters. In the UK, which was never big on home equity lines of credit, Arends could live off his house-price appreciation in essentially one of three ways. Either he could do periodic cash-out refinancings, or else he could take out an occasional second mortgage, or else he could simply rack up revolving credit and personal loans, safe in the knowledge that he could pay off all that debt when he sold his house and moved back to the US.

All of which helps explain the enormous rise in personal debt in the UK: essentially a very large segment of the homeowning population embarked on a mass conversion of home equity to personal debt over the course of the past decade. Since debt is more liquid than home equity, and since liquidity is a key ingredient of bubbles, house prices started soaring unsustainably.

On the other hand, the UK avoided two aspects of the US bubble: the originate-to-distribute business model, which destroyed underwriting standards; and the soaring ratio between the cost of buying and the cost of renting, which is a huge incentive to default when your home equity drops below zero. What’s more, a lot of the housing bubble in central London, as Arends notes, is a function of properties “bought up by tycoons from Russia, the Middle East and elsewhere”. Those tycoons tend to pay cash, and a bubble without debt is relatively harmless.

Arends asks in his piece whether the crisis is really over, or whether there are other bubbles — like London property — which have yet to really burst. It’s a germane question, and I suspect that his worries are well founded, and that there’s a lot more crisis yet to come. My feeling is that there probably is. On the other hand, the next stage of the crisis might well be slow and protracted, as in Japan, rather than chaotic and devastating, as in 2008. The main difference, I think, lies in default rates. If international capital markets are rocked by another big wave of defaults (Greece, or Spain, or California, or commercial real-estate, say), then we could easily slide back into chaos. On the other hand, if all we see is a long and slow decline in property values in countries where homeowners are still able to pay their mortgages, the next stage of the crisis might take a lot longer to resolve.

In The Black Swan, Nassim Taleb explains his barbell investment strategy:

Instead of putting your money in “medium risk” investments (how do you know it is medium risk? by listening to tenure-seeking “experts”?), you need to put a portion, say 85 to 90 percent, in extremely safe investments, like Treasury bills — as safe a class of investments as you can manage to find on this planet.

Today, he’s saying something rather different:

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific.

This is Taleb at his most quotable and least helpful. Of course most human beings shouldn’t get involved in shorting anything. What’s more, Larry Summers actually put on that trade — that long-term interest rates would rise — while he was at Harvard, with disastrous consequences. Even no-brainers can lose you billions.

In any case, if 90% of your assets are in safe Treasury bills and a large chunk of the other 10% is being put to use shorting Treasury bonds, essentially what you’re doing is putting on a curve steepener — at a point in time when the curve is already as steep as it’s been in some time. What’s more, unless you’re extremely leveraged, you’re never going to get rich shorting Treasuries. And I’m sure that Nassim would never recommend that kind of leverage.

Taleb isn’t actually giving investment advice here, although it might sound as though he is. He’s just making a rhetorical point that Bernanke and Summers are bound to make some kind of a mistake in trying to steer the US economy — and that such mistakes are likely to result in higher long-term rates. The problem is that, as we saw during the most recent crisis, every so often an economic disaster results in lower long-term rates. So overall I’d say that following Nassim’s investment advice from his book is definitely preferable to following off-the-cuff comments he’s making in Moscow.

Back when Dominique Strauss-Kahn first put himself in the running for the managing director job of the IMF, I said this:

One point in his favor: he’s utterly failed to become president of France, so he’s not going to pull a Horst Köhler and quit to become president of his own country.

It seems I might have spoken too soon:

Dominique Strauss-Kahn, the French politician who heads the International Monetary Fund, said on Thursday he might cut short his mandate, stoking speculation that he wants to run in France’s 2012 presidential election.

His term as managing director of the IMF expires in October 2012, several months after the election, which means the Socialist veteran would have to quit ahead of time if he wanted to challenge President Nicolas Sarkozy at the ballot box.

Clearly DSK doesn’t feel much gratitude towards Sarkozy for getting him the job in the first place. But if this does happen, the Europeans really don’t seem to be doing a very good job with the position: both Köhler and Strauss-Kahn clearly consider it inferior to the national presidency, while Rodrigo Rato, who held the post briefly in between them, quit for mysterious “personal reasons”.

Is this a job which we really want to give to Gordon Brown, who certainly would love it? The answer I think is no. It’s long past time that a non-European held the position; maybe, after living in Paris for the past few years, Angel Gurría counts as being French enough to get the support of at least a few European countries.

Gurría is highly qualified for the job, but I think the main thing now is to set an important precedent and just appoint anybody who isn’t European. Strauss-Kahn himself has told the Brazilian president that he wants to change the selection process for his job. If it ends up going to another European, he’ll have failed.

Stephen Gandel has a good, thought-provoking interview with Roy Smith, a former Goldman banker whose book is available in the UK. His way of looking at both bubbles and busts as being driven by liquidity I think has a lot to be said for it:

There is now about $140 trillion in market capitalization in the word’s financial markets looking for investments. That money can now move around very easily. But even if a relatively small portion of that money goes after something — say, mortgages — it can quickly cause a bubble and a crisis. So all this good work we have done in the past few years to make our capital markets more efficient and open has also made them very hazardous, and we haven’t done anything yet to address that problem.

Here’s Smith’s verdict on the history of Wall Street:

The net result has been a positive for users of capital markets, which can be accessed more cheaply than ever before. But the success of the market has resulted in a vast accumulation of capital in tradable form that is now capable of wrecking whole economies. In 2000 and 2007, financial bubbles did great damage, and the monster is still out there.

Up until now, I’ve thought that the harmfulness of financial innovation was largely a function of its role in enabling regulatory arbitrage. But Smith’s idea I think is stronger. Financial innovation, on this view, is in large part the art of turning illiquid assets into liquid assets. And once an asset is liquid, it’s susceptible to highly-dangerous booms and busts.

The point is that it’s pretty much impossible to have a bubble in something which doesn’t have a liquid asset class supporting it. There’s a good reason that the very concept of a bubble is associated with stocks: stocks are one of the most liquid asset classes in the world. The carry trade is essentially the art of creating bubbles in liquid currency markets. The invention of the mortgage-backed security allowed trillions of dollars to flow into the housing market, where a huge bubble formed. There was a veritable frenzy of trading in Dutch tulips, when they were in a bubble. (Can someone help me out with the Japanese property bubble of the 1980s? What was the driving force behind that?)

It’s not like you can’t lose money where there isn’t a speculative frenzy, of course: banks and insurance companies have been going bust for centuries, after misjudging creditworthiness or losing a gamble when some tail event finally happened. And a lack of liquidity can be just as bad as a surplus of it: if a country has exchange controls and high interest rates, a huge proportion of the money in that country eventually ends up being lent in some form or another to the sovereign, which when it eventually defaults can cause massive economic devastation.

But as Smith says, a world with over $100 trillion in liquidity is by its nature a world prone to bubbles: a tiny slosh of that money in a certain direction can cause massively destabilizing effects in formerly-sleepy corners of the market. And the explosive growth of ETFs, which can turn all manner of fixed-income, commodity, and currency asset classes into liquid and bubble-prone stocks, only makes matters worse.

The monster is still out there — and the monster is growing, as sovereigns with trillions of dollars of disposable wealth at their disposal look for asset classes to invest that wealth in, and as Wall Street continues to extoll its ability to corral multi-billion-dollar financing deals by doing clever things in the capital markets. What’s more, it’s far from clear that regulators even have the ability to identify bubbles, let alone to prevent them growing to destabilizing levels. George Soros said in Davos that he loves identifying bubbles and then jumping on the bandwagon and making lots of money. Can anybody hope to stop him?

Michael Pettis does a good job of systematically dismantling this idiotic line from Tom Friedman:

First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves.

In fact, if you decided to short only countries whose foreign exchange reserves reached some large proportion of gross world product, you’d be batting 2 for 2 right now as you started shorting China. First you would have shorted the USA in the 1920s, and then you would have shorted Japan in the 1980s.

Writes Pettis:

It was the very process of generating massive reserves that created the risks which subsequently devastated the US and Japan. Both countries had accumulated reserves over a decade during which they experienced sharply undervalued currencies, rapid urbanization, and rapid growth in worker productivity (sound familiar?). These three factors led to large and rising trade surpluses which, when combined with capital inflows seeking advantage of the rapid economic growth, forced a too-quick expansion of domestic money and credit.

It was this money and credit expansion that created the excess capacity that ultimately led to the lost decades for the US and Japan. High reserves in both cases were symptoms of terrible underlying imbalances, and they were consequently useless in protecting those countries from the risks those imbalances posed.

One of the scariest aspects of the most recent financial crisis is that far from addressing the biggest and most potentially destabilizing global imbalances, it actually exacerbated them. If and when those imbalances unwind chaotically, the global effects will be highly unpredicatable. But it’s far from clear that China will be any kind of safe haven.

The most ridiculous sentence I’ve read today comes from Goldman Sachs, protesting against proposals that money-market funds should be marked to market. But first let’s remember what Goldman CEO Lloyd Blankfein has to say about marking to market:

For Goldman Sachs, the daily marking of positions to current market prices was a key contributor to our decision to reduce risk relatively early in markets and in positions that were deteriorating. This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions. We mark-to-market, not because we are required to, but because we wouldn’t know how to assess or manage risk if market prices were not reflected on our books.

Now read this, from his employee James McNamara:

We do not believe that disclosing shadow prices or market-based prices of portfolio securities would be informative to investors… Investors who perceive a NAV differential between two money market funds may wrongly assume that the fund with the lower market NAV is experiencing a material credit or liquidity problem. This may result in destabilizing — and unnecessary — levels of redemption activity in that fund, which could infect other funds managed by the same adviser or other funds as well. The Commission should be mindful of this type of unintended consequence before adopting regulations mandating the disclosure of market-based NAV’s and market-based pricing of portfolio securities.

When Goldman Sachs reduces its positions as a result of declining market prices, then, that’s a necessary, if difficult and sometimes painful, discipline. When investors in money-market funds do the same thing, however, that’s destabilizing and unnecessary. Alles klar?

David Reilly makes short shrift of such hypocrisy in his column today, and adds something important:

The industry’s case against floating values is that investors would pull cash out of money-market funds because they want investments with a stable value. That, the argument goes, would deprive American companies of a vital source of funding, since money-market funds are big buyers of short-term commercial paper issued by companies.

That is a well-worn ploy from the financial-services industry to counter any change that cuts into business. Banks used this tactic effectively in 2003 and 2004, for instance, to pressure the Financial Accounting Standards Board to water down rules that would have limited banks’ ability to use off-balance- sheet vehicles.

The result was out-of-control securitization and under- capitalized banks, both of which played huge roles in crashing the financial system.

The fact is that higher short-term funding costs for large corporations are a feature, not a bug, in terms of moving money-market funds to floating NAVs. Goldman might like to bellyache about “the diminished supply of short-term credit to corporations” that might result, but short-term credit is always the most systemically-dangerous form of credit, since it can dry up with no warning and cause a major liquidity crisis.

More generally, it’s both silly and far too easy for banks to cry “more expensive credit!” every time that anybody proposes tightening regulations on anything from credit cards to prop trading. Yes, it is true that decades of financial-sector deregulation led to cheaper credit, in the financial industry, in the housing market, in the private-equity world, and elsewhere. This was not a good thing. $1 NAVs obscure the risks inherent in money-market funds, and a sensible regulatory overhaul would put an end to them.

Bento, from Ultimi Barbarorum, doesn’t have an FT subscription, and as such is prone to running into its paywall. Recently, however, he’s noticed something odd: when he visits the FT after having reached his quota limit, the page loads fully — including all of the ads on it — and then the paywall popup appears, preventing him from reading it. He wondered: does this mean that advertisers are being charged when the FT serves up impressions that can’t be seen?

I asked FT.com publisher Rob Grimshaw about this, and he said that yes, that has been happening since “the final few weeks of last year”. The fix, he says, is going to be a two-stage process. First, he’ll “take temporary steps to ensure that all campaigns on the site receive a full quota of unobscured impressions”. Second, he’s going to move the paywall popup, “so that it only obscures the portion of the page below the ad position”.

You’ve got to admire the chutzpah here: the FT is happy to prevent would-be readers from seeing its stories, but it’s going to make sure those readers can still see its ads — the equivalent of giving magazines away if you’re happy to read a version where all the editorial content is redacted and only the ads remain.

The problem, of course, is that the FT’s advertisers are buying inventory based on the idea that their ads are being served up against high-value FT content, as opposed to a negative-value paywall popup. Does any advertiser really want to send a message of “this paywall is brought to you by IBM”? It seems, if they’re going to continue to buy space on FT.com, that they might not have any choice in the matter.

Paul Volcker’s long NYT op-ed last weekend, and his testimony to the Senate banking committee this week, did very little to clear up a lot of the uncertainty over what exactly the Volcker rule comprises. That was probably deliberate, given the degree to which Chris Dodd is skeptical that any such rule can be implemented at all. But the contours of a Volcker rule are slowly emerging all the same, and that they carve out two enormous loopholes.

Firstly, the Volcker rule seems to apply only to depositary institutions: if you don’t take deposits, then you’re exempt. The result is that it’ll be easy for Goldman Sachs and Morgan Stanley to get around the rule just by returning their current (tiny) deposit base and voluntarily withdrawing from access to the Fed’s discount window.

But the point here is that banks with deposit bases are already insured and regulated, by the FDIC. The definition of a bank isn’t an entity which takes deposits; it’s an entity which borrows short and lends long. So long as the likes of Goldman Sachs can fund themselves in the wholesale market and continue to lend money to large clients in things like the syndicated loan market, they’re banks, and they should be subject to rules like Volcker’s which apply to banks.

Secondly, it seems that banks might be allowed to continue to own hedge funds, private-equity funds, money-market funds, and the like, just so long as they’re run for clients, with client money, rather than being vehicles for the investment of the bank’s own capital.

This too is dangerous, because the history of the financial crisis is clear: Bear Stearns ended up bailing out its internal hedge funds even when it didn’t legally have to. Large banks ended up bailing out clients who invested in auction-rate securities. Fund managers ended up putting up their own capital to stop money market funds from breaking the buck. Banks with SIVs ended up bringing them onto their own balance sheet, taking enormous associated losses. Etc etc. Essentially, a bank might say that it has no exposure to such things, and that all the risk lies with its investing clients. But that’s never, ever true.

So while I think that the Volcker rule is a good idea, I also think that it has already been diluted to a point at which it will do very little good. If prop trading is a problem, it’s much more of a problem at Goldman Sachs than it is at Wells Fargo — yet the Volcker rule would apply to Wells Fargo and not to Goldman Sachs. Similarly, if owning hedge funds is a problem, it’s a problem whether or not the bank’s capital is nominally invested in the fund, but the Volcker rule gives banks an easy way to wriggle out from under it, simply by withdrawing their own investment.

So my feeling is that the Volcker rule probably won’t make its way into law, and that it’ll be largely toothless if it does. A shame.

The fight between capital and labor has been a bit lopsided of late, so I’m quite happy to see that the Teamsters seem to have scored a real win from their latest PR campaign against Goldman Sachs.

Goldman Sachs stopped making markets in bonds and credit default swaps (CDSs) on US freight company YRC Trucking for around two weeks from December 16, as part of an effort to stave off a public relations catastrophe. The decision to stop quoting on YRC is understood to have been taken at a very senior level in Goldman, after freight union International Brotherhood of Teamsters (IBT) sent letters to congressmen, senators and state attorneys-general accusing the bank of encouraging investors to torpedo YRC’s restructuring – which would have threatened the jobs of around 30,000 IBT members.

Later on in the article there’s bellyaching from anonymous credit traders that the IBT seems to be using the CDS market as a bugaboo much more successfully than semi-mythical “empty creditors” have ever been able to use it to force bankruptcies. “The episode has sparked concern,” write the authors with a straight face, “that failing companies could use political pressure to strong-arm banks and investors into backing restructurings”.

Doesn’t your heart just bleed.

Personally, I’m far from convinced that empty creditors are a real problem. But if they can be used as a bogeyman to save jobs and prevent unnecessary and costly bankruptcies, then they will have served some good purpose. Well done to the Teamsters for executing this strategy so well, and I look forward to its being used again in future.

It will be the job of the Consumer Financial Protection Agency — assuming it ever comes into existence — to crack down on banks sneaking inadequately-disclosed fees onto their customers. in the mean time, we have to make do with the Fed, and, um, the New York attorney general:

Citigroup Inc. agreed Monday to suspend plans to charge fees on certain kinds of checking accounts as part of a settlement reached with the New York Attorney General’s office.

The fees would have affected more than 1 million customers.

Attorney General Andrew Cuomo said Citigroup failed to provide adequate disclosures about the fees, and also didn’t offer a free checking program long enough before implementing the charges. Cuomo did say the bank had the right to start charging fees, but it needs to respect consumers’ rights and give proper notice.

New York’s banks are, of course, no strangers to the experience of cowering in the face of an onslaught from an attorney general with gubernatorial ambitions. But I do wonder what will happen if and when the CFPA is created, and how many turf wars there might be.

Update: Maybe Cuomo should take a look at Citi’s latest attempt to find a loophole in the new credit-card rules.

It probably comes as no surprise to learn that bankers have discovered a loophole allowing them to turn their restricted stock into cash. The trick is to notice that restricted stock can still be vested stock — which means that although it can’t be sold, it is owned by the employee in question and can therefore be pledged as collateral against some kind of equity derivative.

Liam Vaughan’s article is vague on the specifics, talking only about “strategies such as call options, put options, and collars” which allow bankers to cash out at “a discount of up to 50%”; I’d be interested to know exactly how this works. The obvious thing to do is just sell the stock forward on the date it stops being restricted, but maybe that’s not allowed or there’s a smarter way to do the same thing using options.

Does anybody have any details on what’s going on here, and how widespread this practice is? And does this tactic defeat the purpose of paying bankers in stock, or is the 50% discount punishment enough?

The Volcker rule is an attempt to ensure that banks which are too big or interconnected to fail — institutions which will certainly get bailed out if they blow up — don’t take inordinate risks on their own account. So this worries me:

Some institutions will be able to avoid facing the Volcker rule by shedding their insured deposits, according to U.S. Deputy Treasury Secretary Neal Wolin on Monday.

Goldman Sachs Group, which funds fewer than 5 percent of its assets with deposits, could easily change its funding profile to get out from under the rule.

Why should an enormous bank like Goldman get out from under the Volcker rule just by dint of not taking deposits? If it’s a leveraged institution with a risk of systemically-damaging failure, then it’s exactly the kind of bank which should be subject to the rule. Or is Treasury, here, trying to weaken Volcker’s intent?

On Friday, Lance Knobel rose to the defense of the World Economic Forum. On Saturday, I was cornered by a particularly aggressive Young Global Leader, who had taken the oath, and whose plans for making the world a better place I developed a severe aversion to quite early, at exactly the time that he used the word “platform” as a verb. On Sunday I talked to another YGL who had also taken the oath and was happy to defend it. And today I stumbled across a piece of Davos PR fluff claiming that “the Forum has reached a worldwide audience of 430 million readers online namely through the use of social networks”.

So I feel like I need to say one last time — and with any luck this’ll be my last Davos post for the year — No. No, your oath is not something which at best is a good thing and which in any case can do no harm. No, it’s not “pretty rare” to find well-intentioned people anywhere in the world. No, you didn’t reach 430 million people. In fact, you didn’t even reach 1 million, your high follower count on Twitter notwithstanding.

All of these things are part of the bigger phenomenon of Davos hubris and exceptionalism — the very thing which I think can be so very dangerous. Hang out at Davos for long enough, and you become convinced that you’re a special person who can make the world a better place and who indeed has a moral obligation to act thusly. If you start believing everything that people in Davos say to you, you can eventually end up with the kind of mindset which leads to a convinction that invading Iraq is a really good idea.

Why do people go to Davos? Because being invited makes you feel like you’re a member of a select club. Because the message makes you feel good about yourself and your ability to change the world. Because people keep on referring to you as a “leader”. Because, for the minority of people at Davos who genuinely are important, it’s a place where you can let your guard down for a bit, and chat to the person sitting on the couch next to you without having to deal with them as a potential starfucker or protestor or whatever.

That’s why it’s really not in the slightest bit impressive that Percy Barnevik was nice to Lance Knobel’s spouse — Davos does the prefiltering for you, and you can relax once you’re there in your bed of vanity. “You wouldn’t be here if you weren’t important,” the YGL told me, with a perfectly straight face, on Saturday night, basking in the reflected glory of being in the same bar as moguls and billionaires singing loudly along with Barry the piano man. Davos is a social occasion, and in many ways it’s closer to being a four-day-long cocktail party than it is to being a place where anything substantive gets done. Besides, interesting people often have interesting spouses, and Lance is no exception in that respect; more generally, just as the most interesting panels are the ones you know nothing about, the most interesting people you meet are likely to be ones you’ve never heard of before.

The problem here is that Davos isn’t content being a place where people make polite conversation and serendipitously end up sitting next to someone fascinating at dinner; it also aspires to changing the world. Lance says that I’m “overrating the Forum’s influence and power” when I say that it was responsible, at least in part, for the economic and financial catastrophe which befell the world in 2008 — but my point isn’t that Davos is influential or powerful in itself, just that it inculcates a mindset in its delegates where they’re convinced that they’re doing good (the oath is a prime example of this), and never stop to modestly wonder whether they’re wrong. And that kind of mindset can be very destructive: if the road to hell is paved with good intentions, then Davos is the road crew keeping it smooth and fast.

What counts as a core Citicorp holding, and what counts as a Citi Holdings asset which should probably be sold? If you think there’s any kind of coherent philosophy determining such decisions, think again:

Citigroup Inc. plans to sell or split off its $10 billion Citi Private Equity unit…

Other money-management units marked for sale or closure include the Citi Property Investors real-estate unit, which oversees $12.5 billion; and the Hedge Fund Management Group, which allocates money to hedge funds on behalf of its own investors, the people said.

Citigroup plans to keep Metalmark Capital LLC, a buyout firm the bank agreed to buy for an undisclosed sum in December 2007…

The bank also is keeping another fund, Citi Venture Capital International, which focuses on China, India, Central and Eastern Europe and Latin America.

Essentially, all this boils down to “if you happen to be in Vikram’s good books this week, he’ll want to keep you, otherwise he’ll decide to sell you”. That’s not a strategy, it’s a monarchy.

Citigroup’s largest shareholder is the US government, which has made it abundantly clear that it wants all banks — not just Citi — to sell off all of their hedge-fund and private-equity operations. Pandit should get out in front of this rule, and put the entire Citi Capital Advisors operation, along with all the rest of his buy-side operations, on the block. It’s not like they ever moved the needle in any case.

It would be overly simplistic, but partially accurate, to ascribe the current crisis at Harper’s to the fact that its website is mostly hidden behind a paywall. I can’t even remember when I let my subscription lapse, but the magazine simply isn’t on my radar screen these days: with the exception of its current highly controversial Guantanamo story (which, notably, Harper’s put outside the paywall), pieces from Harper’s simply don’t get talked about.

A magazine’s website can and should be a force multiplier, extending the reach of the magazine from its historical place in subscribers’ homes. No one has ever subscribed to Harper’s because of something they read on its website, and as public discourse moves increasingly online, any public-interest magazine with a high paywall will be doomed to irrelevance.

What’s clear in the case of Harper’s is that its paywall — just like its editor’s decision to remove himself from the office voicemail directory — is a clear sign of how stodgy and old-fashioned it is. Newspapers flirting with the idea of erecting such a wall should remember that, and realize that it’s a big step backwards. You can coast on an existing store of momentum for a while, but eventually and inevitably that momentum will fizzle out. If you want to build a franchise which can thrive over the long term, you need to pick up new readers to replace those who drop out. And in order to do that, you need an exciting and vibrant website.

David Roodman has an interesting post saying that calls for debt relief in Haiti are misguided. He’s put together this chart:

Roodman’s point here is that we should concentrate political capital where it does the most good — by trying to reduce tariffs to increase Haiti’s exports, and by reducing barriers to immigration from Haiti, to boost remittances. Concentrating on debt relief is a distraction: Haiti had most of its debt wiped out in 2009, and most of the rest is being paid Haiti’s behalf for the US. What remains is mainly debt to Taiwan and Venezuela, the country which sent the first planes of humanitarian aid to arrive in Port-au-Prince, and which is unlikely to push for timely repayment for the foreseeable future.

Or, to put it another way, efforts to enable Haiti to pay its modest foreign debt are sure to be much more effective than efforts to simply eradicate it. The main task facing the developed world right now is to rebuild Haiti and its institutions; if it ever reaches the point where it’s capable of paying its debts, we will have succeeded.

But mightn’t wiping out debts help on other fronts too? Tim Harford wonders whether “one should seize on a simple focal issue and then once you have people’s attention, broaden the scope of political pressure”. My feeling is that in this case, that doesn’t work very well, since Haiti’s creditors are not the same institutions which can help on other fronts.

In general, debt relief is useful only insofar as it’s a solution to a serious problem — and since debt-service costs aren’t a problem at all in Haiti right now, debt relief isn’t much of a solution to anything. And it’s certain that the fiscal cost of wiping out Haiti’s debt — the write-off which Haiti’s creditors would have to incur if they did so — would be much better spent in other forms of aid.

Being debt-free isn’t some halcyon state to which any successful nation aspires: even net creditor countries tend to have significant amounts of debt. Asking for Haiti’s debt to be wiped out has undertones of paternalism and even imperialism, and while I wouldn’t say that it was harmful, I do agree with Roodman that there are much more important things to concentrate on.

Update: Annie Lowrey responds to Roodman.

I’ve landed in London, where I woke up this morning to a classic piece of British journalism, under the headline “Lloyd Blankfein of Goldman Sachs ‘expecting $100 million bonus’“:

Goldman Sachs, the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts.

Bankers in Davos for the World Economic Forum (WEF) told The Times yesterday they understood that Lloyd Blankfein and other top Goldman bankers outside Britain were set to receive some of the bank’s biggest-ever payouts. “This is Lloyd thumbing his nose at Obama,” said a banker at one of Goldman’s rivals.

It goes without saying, of course, that Goldman’s rivals couldn’t possibly know what Blankfein’s bonus is going to be. And given Goldman’s record-low compensation ratio this year, along with the bank’s cap on bonuses in the UK, it frankly boggles the imagination that he’s going to get anywhere near $100 million. Goldman knows that bonuses are a hot-button issue politically, and it’s going to keep them (relatively, by its standards) modest for 2009.

Blankfein — who hardly needs the money — knows full well that he can’t, this of all years, pay himself the largest bonus ever received by a bank CEO in the history of the world. As a result, his bonus is going to be less than the $68 million he made in 2007. It’ll probably be in the eight figures, but it won’t be anywhere near $100 million. No matter what Helen Power heard from gossipy bankers in Davos.

Regulators around the world are trying to both change their regulatory framework in dramatic ways and to bring those new frameworks into line with each other. Given the difficulty in doing either, my feeling is that successfully doing both, while necessary, is also all but impossible.

For an example of just how difficult this kind of thing can be, just take a look at the the latest international incident surrounding Swiss bank accounts. This time, it’s details of 1,500 alleged German tax evaders with accounts at HSBC Switzerland; their information is being shopped to the German authorities for €2.5 million.

Put to one side the ethics of paying for stolen information; assume that former HSBC employe Herve Falciani was willing to give the information to the Germans for free. The point here is that something which is perfectly legal in Switzerland — tax evasion — is illegal right across the border in Germany.

For most of the recent boom in the financial services industry, there has been a deregulatory race to the bottom — the equivalent of all countries feeling forced to adopt a Swiss-style regime where most financial transactions and accounts are essentially sheltered beyond regulatory oversight. Any time that someone started talking about beefing things up a bit, the big banks and their lobbyists would start talking about “the status of [insert city/country here] as a financial center”, and nothing would come of it. All you need is one London or Switzerland where the rules are lax and where money flows freely, and everybody else is essentially rendered powerless to prevent excesses and abuses.

The UK authorities, having suffered an enormous fiscal cost in bailing out banks which took too much risk, are now on board in principle with the need to tighten things up; in terms of private banking, the Swiss aren’t even close yet. But in order to see what regulatory arbitrage looks like in the real world, all you need to do is ask the tax authorities in the US, Germany, and France what they think of the Swiss regime, and what they think of prospects for constructive cooperation going forwards. If it’s not going to happen in the world of private banking, it’s going to be hard to get the same banks regulated consistently when it comes to their commercial and investment banking functions.

Remember the famous 2002 debate between Joe Stiglitz and Ken Rogoff? Well, they seem to be in agreement with each other now — World Bank, Reuters 1, Reuters 2

5 Myths about America’s Credit Card Debt — WaPo

“Books are, within reasonable limits, demand-inelastic” — TBM

Cost Dispute Halts Airlift of Injured Haiti Quake Victims — NYT

Amazon buys ebooks from publishers at $10-$14 wholesale, says Blodget — SAI

Treasury Removes Embarrassing Line From Mortgage Modification Report — Atlantic

Somali Pirates Plan to Send Treasures Taken from Rich Countries to Haiti — Racewire

iPad v. A Rock — TechCrunch

Brad Tuttle is even more defeatist than me when it comes to regulating credit cards — Time

Me, on Ingrassia and Maynard, in the NYT Book Review — NYT

Modern art is rubbish — BBC

We Have Seen The Amazing Future Of Apple’s iPad And This Is It — SAI

You didn’t buy back your stock at $50, so why are you buying it now at $125? — 24/7 Wall St

Beautiful visualization of fonts and ink — Flowing Data

Smart take by Sean Park on why the VC world ignores finance in favor of tech — Park Paradigm

Rather than face reality and open their books, Dubai and Sheikh Mohammed Al Maktoum tell S&P to get stuffed — Ian Fraser

Zero Hedge thinks that Morgan Stanley’s research is excellent. So they pass it off as their own — Davian

You thought bank PRs were bad about forcing hacks to “check quotes” etc? Just check out the PRs for UK C-list celebs! — 3am

How To Report The News on TV — YouTube