Arianna Told Me To Write This Blog Post

Arianna Huffington at The Huffington Post:

I’ve used this space to make all sorts of important HuffPost announcements: new sections, new additions to the HuffPost team, new HuffPost features and new apps. But none of them can hold a candle to what we are announcing today.

When Kenny Lerer and I launched The Huffington Post on May 9, 2005, we would have been hard-pressed to imagine this moment. The Huffington Post has already been growing at a prodigious rate. But my New Year’s resolution for 2011 was to take HuffPost to the next level — not just incrementally, but exponentially. With the help of our CEO, Eric Hippeau, and our president and head of sales, Greg Coleman, we’d been able to make the site profitable. Now was the time to take leaps.

At the first meeting of our senior team this year, I laid out the five areas on which I wanted us to double down: major expansion of local sections; the launch of international Huffington Post sections (beginning with HuffPost Brazil); more emphasis on the growing importance of service and giving back in our lives; much more original video; and additional sections that would fill in some of the gaps in what we are offering our readers, including cars, music, games, and underserved minority communities.

Around the same time, I got an email from Tim Armstrong (AOL Chairman and CEO), saying he had something he wanted to discuss with me, and asking when we could meet. We arranged to have lunch at my home in LA later that week. The day before the lunch, Tim emailed and asked if it would be okay if he brought Artie Minson, AOL’s CFO, with him. I told him of course and asked if there was anything they didn’t eat. “I’ll eat anything but mushrooms,” he said.

The next day, he and Artie arrived, and, before the first course was served — with an energy and enthusiasm I’d soon come to know is his default operating position — Tim said he wanted to buy The Huffington Post and put all of AOL’s content under a newly formed Huffington Post Media Group, with me as its president and editor-in-chief.

I flashed back to November 10, 2010. That was the day that I heard Tim speak at the Quadrangle conference in New York. He was part of a panel on “Digital Darwinism,” along with Michael Eisner and Adobe CEO Shantanu Narayen.

At some point during the discussion, while Tim was talking about his plans for turning AOL around, he said that the challenge lay in the fact that AOL had off-the-charts brand awareness, and off-the-charts user trust and loyalty, but almost no brand identity. I was immediately struck by his clear-eyed assessment of his company’s strengths and weaknesses, and his willingness to be so up front about them.

As HuffPost grew, Kenny and I had both been obsessed with what professor Clayton Christensen has famously called “the innovator’s dilemma.” In his book of the same name, Christensen explains how even very successful companies, with very capable personnel, often fail because they tend to stick too closely to the strategies that made them successful in the first place, leaving them vulnerable to changing conditions and new realities. They miss major opportunities because they are unwilling to disrupt their own game.

After that November panel, Tim and I chatted briefly and arranged to see each other the next day. At that meeting, we talked not just about what our two companies were doing, but about the larger trends we saw happening online and in our world. I laid out my vision for the expansion of The Huffington Post, and he laid out his vision for AOL. We were practically finishing each other’s sentences.

Two months later, we were having lunch in LA and Tim was demonstrating that he got the Innovator’s Dilemma and was willing to disrupt the present to, if I may borrow a phrase, “win the future.” (I guess that makes this AOL’s — and HuffPost’s — Sputnik Moment!)

There were many more meetings, back-and-forth emails, and phone calls about what our merger would mean for the two companies. Things moved very quickly. A term sheet was produced, due diligence began, and on Super Bowl Sunday the deal was signed. In fact, it was actually signed at the Super Bowl, where Tim was hosting a group of wounded vets from the Screamin’ Eagles. It was my first Super Bowl — an incredibly exciting backdrop that mirrored my excitement about the merger and the future ahead.

Jack Shafer at Slate:

I underestimated Arianna Huffington when she launched her Huffington Post in May 2005. I didn’t trash the site the way Nikki Finke did, though. Finke called Huffington the “Madonna of the mediapolitic world [who] has undergone one reinvention too many,” and slammed her site as a “humongously pre-hyped celebrity blog” that represented the “sort of failure that is simply unsurvivable.” And those were among Finke’s nicer comments.

Instead of critiquing Huffington’s debut copy, I speculated as to whether she was up to the job of “impresario.” In the scale of things, my write-up is more embarrassing today, now that Huffington has sold the Post to AOL for $315 million, than is Finke’s pissy take. Huffington has proved herself a first-rate entrepreneur, incubator of talent, and media visionary.

Felix Salmon:

My feeling, then, is that this deal is a good one for both sides. AOL gets something it desperately needs: a voice and a clear editorial vision. It’s smart, and bold, to put Arianna in charge of all AOL’s editorial content, since she is one of the precious few people who has managed to create a mass-market general-interest online publication which isn’t bland and which has an instantly identifiable personality. That’s a rare skill and one which AOL desperately needs to apply to its broad yet inchoate suite of websites.

As for HuffPo, it gets lots of money, great tech content from Engadget and TechCrunch, hugely valuable video-production abilities, a local infrastructure in Patch, lots of money, a public stock-market listing with which to make fill-in acquisitions and incentivize employees with options, a massive leg up in terms of reaching the older and more conservative Web 1.0 audience and did I mention the lots of money? Last year at SXSW I was talking about how ambitious New York entrepreneurs in the dot-com space have often done very well for themselves in the tech space, but have signally failed to engineer massive exits in the content space. With this sale, Jonah Peretti changes all that; his minority stake in HuffPo is probably worth more than the amount of money Jason Calacanis got when he sold Weblogs Inc to AOL.

And then, of course, there’s Arianna, who is now officially the Empress of the Internet with both power and her own self-made dynastic wealth. She’s already started raiding big names from mainstream media, like Howard Fineman and Tim O’Brien; expect that trend to accelerate now that she’s on a much firmer financial footing.

Paul Carr at TechCrunch:

We really have to stop being scooped by rivals on news affecting our own company.

Tonight, courtesy of a press release that our parent company sent to everyone but us, we learn that AOL has acquired the Huffington Post for $315 million. More interestingly, Arianna Huffington has been made Editor In Chief of all AOL content, including TechCrunch.

Now, no-one here has been more skeptical than me of AOL’s content strategy. I was reasonably scathing about that whole “tech town” bullshit and I was quick to opinion-smack Tim Armstrong in the face over his promise that “90% of AOL content will be SEO optimized” by March. Hell I’ve stood on stage – twice – on TC’s dime and described our overlords as “the place where start-ups come to die”.

And yet and yet, for once I find myself applauding Armstrong – and AOL as a whole – for pulling off a double whammy: a brilliant strategic acquisition at a logical price. As AOL’s resident inside-pissing-insider, I can’t tell you how frustrating that is. I can’t even bust out a Bebo joke.

An important note before I go on: I have no idea how any of this will affect TechCrunch. So far AOL has kept true to its promise not to interfere with our editorial and there’s no reason to suppose that will change under Huffington. That said, it would be idiotic to think that our parents’ content strategy – particularly the SEO stuff – won’t have annoying trickle-down consequences for all of us in the long term.

As I wrote the other week, I hate SEO. It’s bad for journalism as it disincentivises reporters from breaking new stories, and rewards them for rehashing existing ones. And it’s bad for everything else because, well, it’s garbage. But when discussing the SEO phenomenon privately, I’ve always cited the Huffington Post as the exception that proves the rule.

Arianna Huffington’s genius is to churn out enough SEO crap to bring in the traffic and then to use the resulting advertising revenue – and her personal influence – to employ top class reporters and commentators to drag the quality average back up. And somehow it works. In the past six months journostars like Howard Fineman, Timothy L. O’Brien and Peter Goodman have all been added to the HuffPo’s swelling masthead, and rather than watering down the site’s political voice, it has stayed true to its core beliefs. Such is the benefit of being bank-rolled by a rich liberal who doesn’t give a shit.

Ann Althouse:

What difference does it make? AOL as a brand meant something to me in the 1990s, but not now. Who cares whether AOL retains a semblance of political neutrality? In any case, mainstream media always feels pretty liberal, so why would anyone really notice. Now, that quote is from the NYT, so… think about it. The NYT would like to be the big news site that looks neutral (but satisfies liberals). HuffPo is the raging competition, which needs to be put in its place.

Alexis Madrigal at the Atlantic

Erick Schonfeld at TechCrunch

Kevin Drum:

Last night I saw a tweet saying that AOL was going to buy the Huffington Post for $31.5 million. Yowza, I thought. That’s a pretty rich valuation. Maybe 20x forward earnings? Who knows?

But no! AOL actually bought HuffPo for $315 million. I mentally put in a decimal place where there wasn’t one. I don’t even know what to think about this. It sounds completely crazy to me. The odds of this being a good deal for AOL stockholders seem astronomical.

Still, maybe I’m the one who’s crazy. After all, I haven’t paid a lot of attention to either HuffPo or AOL lately. I’m a huge skeptic of synergy arguments of all kinds, but maybe Arianna is right when she says that in this deal, 1+1=11

Peter Kafka at Media Memo:

So maybe AOL + HuffPo won’t equal 11. And maybe 10x Huffington Post’s reported 2010 revenue is a very pre-Lehman multiple. But the broad strokes here make sense to me:

AOL is pushing its workers very hard to make more content it can sell. HuffPo is a content-making machine:

Huffington Post still has the reputation as a left-leaning political site written by Arianna Huffington’s celebrity pals. In reality, it is most concerned with attracting eyeballs anyway it can. Sometimes it’s with well-regarded investigative journalism, and much more often it’s via very aggressive, very clever aggregation. And sometimes it’s by simply paying very, very close attention to what Google wants, which leads to stories like “What Time Does The Super Bowl Start?“

However they’ve done it, it’s worked–much more efficiently than AOL, which is headed in that direction as well. AOL reaches about 112 million people in the U.S. every month with a staff of 5,000. The Huffington Post, which employed about 200 people prior to the deal, gets to about 26 million.*

AOL can start selling this stuff immediately:

HuffPo reportedly generated around $30 million in revenue last year, but that was done using a relatively small staff that sales chief Greg Coleman had just started building. AOL’s much bigger sales group, which has just about finished its lengthy reorg, should be able to boost that performance immediately.

AOL can afford it:

Tim Armstrong’s company ended 2010 with $725 million in cash, much of which it generated by selling off old assets. This seems like a relatively easy check to write and one that shouldn’t involve a lot of overlapping staff–AOL figures it will save $20 million annually in cost overlaps, but that it will spend about $20 million this year on restructuring charges. HuffPo is about four percent of AOL’s size, and several of its top executives are already stepping aside. (This is the second time in two years that sales boss Greg Coleman has been moved out of a job by Tim Armstrong.) The biggest risk here will be in the way that Huffington, who is now editor in chief for all of AOL’s edit staff, gets along with her new employees. On the other hand, morale is low enough at many AOL sites that it will be hard to make things worse.

AOL Gets a Really Big Brand:

There’s some downside risk to attaching Arianna Huffington’s name to a big, mainstream media brand, as her politics and/or persona might scare off some readers and/or advertisers. But two years after Armstrong arrived from Google, AOL still doesn’t have a definable identity, other than “the Web site your parents might still pay for even though there’s no reason to do so.” Being known as “the guys who own Huffington Post” is infinitely better than that.

HuffPo’s “pro” list is much shorter, but only because there’s not much to think about for them: Huffington, co-founder Kenneth Lerer and their backers get a nice return on the five years and $37 million they put into the company. And those who stay on get to leverage the benefits of a much larger acquirer–access to more eyballs and more advertisers. Easy enough to understand.

Dan Lyons at The Daily Beast:

No doubt Hippeau and Lerer and Huffington were drinking champagne last night, but the truth is, this deal is not a victory for either side. It’s a slow-motion train wreck and will end in disaster.

Listen to Nick Denton, who runs Gawker, which now becomes the biggest independent Web-based news outlet. “I’m disappointed in the Huffington Post. I thought Arianna Huffington and Kenny Lerer were reinventing news, rather than simply flipping to a flailing conglomerate,” he told me.

Denton insists he has no intention of ever selling Gawker, and he seems not-so-secretly pleased to see his opponents cashing out: “AOL has gathered so many of our rivals— Huffington Post, Engadget, Techcrunch—in one place. The question: Is this a fearsome Internet conglomerate or simply a roach motel for once lively websites?”

One big problem with the deal is that Arianna Huffington now runs editorial for AOL properties, which include tech sites Engadget and TechCrunch. Those sites are both accustomed to being free-wheeling, fiercely independent and fiercely competitive—so competitive, in fact, that recently they’ve been battling with each other.

Michael Arrington, who runs TechCrunch and just sold it to AOL a few months ago, is an abrasive, big-ego, sometimes obnoxious guy. He’s a friend of mine, so I mean this in the best possible way. But I can’t imagine him working for Arianna.

The other, bigger problem is AOL itself. AOL touts itself as a media company, but as Ken Auletta reported in The New Yorker recently, most of what AOL publishes is junk, and 80 percent of its profits come from a rather seedy little business—charging subscription fees from longtime users who don’t realize that they no longer need to pay for AOL service, and could be getting it free.

The other problem is that AOL’s chief executive, Tim Armstrong, is a sales guy. He ran sales at Google before he came to AOL in 2009. Nothing wrong with sales guys, except when they start telling people how to do journalism. Sales guys deal in numbers. But journalism is about words. Sales guys live in a world where everything can be measured and analyzed. Their version of journalism is to focus on things like “keyword density” and search-engine optimization.

Journalists live in a world of story-telling, and where the value of a story, its power to resonate, is something they know by instinct. Some people have better instincts than others. Some people can improve their instincts over time. The other part of storytelling is not the material itself but how you present it. Some can spin a better tale out of the same material than others.

But no great storyteller has ever been someone who started out by thinking about traffic numbers and search engine keywords.

With Your Mind On Moving Your Money And Moving Your Money On Your Mind

Arianna Huffington and Rob Johnson at HuffPo:

Last week, over a pre-Christmas dinner, the two of us, along with political strategist Alexis McGill, filmmaker/author Eugene Jarecki, and Nick Penniman of the HuffPost Investigative Fund, began talking about the huge, growing chasm between the fortunes of Wall Street banks and Main Street banks, and started discussing what concrete steps individuals could take to help create a better financial system. Before long, the conversation turned practical, and with some help from friends in the world of bank analysis, a video and website were produced devoted to a simple idea: Move Your Money.

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. But since April, the Big Four banks — JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo — all of which took billions in taxpayer money, have cut lending to businesses by $100 billion.

Meanwhile, America’s Main Street community banks — the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of — are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months. The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.

We talked about the outrage of big, bailed-out banks turning around and spending millions of dollars on lobbying to gut or kill financial reform — including “too big to fail” legislation and regulation of the derivatives that played such a huge part in the meltdown. And as we contrasted that with the efforts of local banks to show that you can both be profitable and have a positive impact on the community, an idea took hold: why don’t we take our money out of these big banks and put them into community banks? And what, we asked ourselves, would happen if lots of people around America decided to do the same thing? Our money has been used to make the system worse — what if we used it to make the system better?

Everyone around the table quickly got excited (granted we are an excitable group), and began tossing out suggestions for how to get this idea circulating.

Eugene, the filmmaker among us, remarked that the contrast between the big banks and the community banks we were talking about was very much like the story in the classic Frank Capra film It’s a Wonderful Life, where community banker George Bailey helps the people of Bedford Falls escape the grip of the rapacious and predatory banker Mr. Potter.

It was a lightbulb moment. And, unlike the vast majority of dinner conversations, the excitement over this idea didn’t end with dessert. It actually led to something — thanks in great part to Eugene and his remarkable team, who got to work and, in record time, created a brilliant, powerful, and inspiring video playing off the It’s a Wonderful Life concept. Watch it below.

Within a few days, the rest of the pieces fell into place, including an agreement with top financial analysts Chris Whalen and Dennis Santiago, who gave us access to their IRA (Institutional Risk Analytics) database. Using this tool, everyone will be able to plug in their zip code and quickly get a list of the small, solvent Main Street banks operating in their community.

The idea is simple: If enough people who have money in one of the big four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it becomes again the productive, stable engine for growth it’s meant to be. It’s neither Left nor Right — it’s populism at its best. Consider it a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest. It’s time for Americans to move their money out of these reckless behemoths. And you don’t have to worry, there is zero risk: deposit insurance is just as good at small banks — and unlike the big banks they don’t provide the toxic dividend of derivatives trading in a heads-they-win, tails-we-lose fashion.

Think of the message it will send to Wall Street — and to the White House. That we have had enough of the high-flying, no-limits-casino banking culture that continues to dominate Wall Street and Capitol Hill. That we won’t wait on Washington to act, because we know that Washington has, in fact, been a part of the problem from the start. We simply can’t count on Congress to fix things. We have to do it ourselves — and the big banks are the core of the problem. We need to return to the stable, reliable, people-oriented approach of America’s community banks.

Lynn Parramore at New Deal 2.0:

Just before Christmas, a group of friends were discussing what people could do to stop big banks from running roughshod over America. Among them was Robert Johnson, Director of Financial Reform at the Roosevelt Institute — you know him from his “FinanceSeer” column on New Deal 2.0. The question was raised: could ordinary folks actually help cure a sick financial system?

Rob had an idea. Why not ask people to move their money from a Too Big to Fail institution to a community bank? Why not trust the banks that have been responsible in managing money and supporting the businesses and people around them? Eugene Jarecki, a filmmaker in the group, recalled the beloved holiday classic It’s a Wonderful Life, and within days he put together the video you see here. The editor at the gathering was none other than Arianna Huffington, and she wrote an editorial asking readers to consider leaving the big banks to gamble with their own money–not yours and mine. “Think of the message it will send to Wall Street — and to the White House,” she writes. “That we have had enough of the high-flying, no-limits-casino banking culture that continues to dominate Wall Street and Capitol Hill.”

A new year, a new movement…and there’s even a new website that let’s you search for a responsible bank near you.

Click here to get started and join the movement.

And please pass the word…it’s time to send a message to Wall Street: We the people have had enough.

Adrian Chen at Valley Wag:

The much-vaunted website looks like “My First WordPress Blog” and consists of: The MOVE YOUR MONEY “viral video”; some words about how corporate banks are bad; and a search tool to help find trustworthy local banks in your area to which you may MOVE YOUR MONEY.

The search tool is courtesy of Institutional Risk Analytics, which sells reports on bank reliability. According to Huffington and Johnson’s article, HuffPo “reached an agreement with top financial analysts Chris Whalen and Dennis Santiago, who gave us access to their IRA (Institutional Risk Analytics) database.” (Whalen is quoted frequently in HuffPo pages.) As first noted by Shawn Wasson of The News Junkie, the Institutional Risk Analytics link is plugged into an affiliate program. Subscriptions to IRA’s service start at $50 and go up to $500 and if you send them a new customer, they’re “paying 20% net of PayPal fees and COGS content license costs, where applicable, in 2009 on affiliate sales credited to your code.”

So, is this some new revenue stream for Huffington’s site? Whalen tells us HuffPo is will not receive any commission from sales generated by the campaign. “The Huffington investigative fund runs the site. We do not pay them any commissions for any sales that may occur,” Whalen wrote in an email.

So: HuffPo launches this MOVE YOUR MONEY campaign, which is basically a glorified link to Institutional Risk Analytics’ bank reports. Corporate America may or may not come crashing to its knees, but we imagine Institutional Risk Analytics’ website will be getting way more than its average of 476 hits tomorrow.

Felix Salmon:

Should people move their money from the big four commercial banks to smaller community banks? Arianna Huffington is making a big push, but I’ll believe it when I see it: moving banks is hard, and people are lazy.

The one thing I would urge though is that if you are moving your money out of BofA/Chase/Citi/Wells, that you strongly consider not only smaller banks but also local credit unions as a place to move your money to. The moveyourmoney.info website is happy to give me a list of local banks including Mitsubishi UFJ (no one’s idea of a small community bank), but doesn’t list any credit unions at all. Here’s a tool to help you find one. If you’re going to go to the hassle of switching away from the big banks, then at least make sure you’ve explored all the options.

James Joyner:

Now, it happens that none of my family’s money is in the Big Four banks (JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo) that Arianna and her pals hate. We use a regional bank, and international virtual bank, and three different credit unions. But I don’t see what this plan accomplishes.

First off, despite the publicity that the Big Four bailouts received, they’re hardly alone. Indeed, Arianna’s article notes that “America’s Main Street community banks — the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of — are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months.” Uh, that’s a bailout. And, surely, we haven’t forgotten the Savings and Loan Crisis of the late 1980s, in which hundreds of billions of taxpayer dollars went to bail out S&Ls from bad loans?

Second, we don’t live in Frank Capra’s world. Going to the handy-dandy local bank finder Arianna and her friends created, I see that my choices are one of several branches of two different institutions. But if I wanted to take out a big loan — say, to hire a bunch of struggling journalists to create a right-of-center version of what Josh Marshall has at TPM — I’d have no better luck at Burke and Herbert than at Bank of America. George Bailey doesn’t work at either place and they don’t know me and I don’t know them.

There may well be towns in America small enough that the local banker does indeed know just about everyone. But people in those towns are probably already banking with him, because they’re not big enough for one of the Big Four to bother opening a branch.

So, I’d suggest that you bank where it makes best sense for your needs. How do their fees stack up against the way you bank? Is there a branch located near your home and/or office? What interest rates do they pay on money left in your account? Do you like to make frequent ATM withdrawals? If so, you should look for one with either a ton of branches (i.e., a Big Four) or else one that waves out-of-network fees (e.g., USAA). Do you want to bank electronically? Then the community bank may not be able to accommodate you.

James Kwak at Baseline Scenario:

I think another issue is that while outrage at Wall Street remains high, most people don’t connect the bank in their town with Wall Street, even if it is a branch of Bank of America. When you walk into a Bank of America branch, it doesn’t feel like Wall Street. It doesn’t even really feel evil; it just feels ugly and corporate and inefficient. I suspect it’s still a mystery to many people how mortgages issued by the bank on the corner are connected to CDOs, the housing bubble, and vast trading profits on Wall Street. My hatred of Bank of America is mainly due to the experience I had with them last summer trying to get old bank statements for a client. (I also recently noticed that while there used to be three Bank of America branches in my town–probably because Fleet, which B of A bought in 2004 or so, was itself the merger of three banks–now there is only one.)

That said, I’m all in favor. I recently canceled my Citibank credit card that I had for twelve years (my remaining cards are American Express and U.S. Bank, which isn’t particularly virtuous but at least avoids the big four), and I only have one step left to close my Bank of America account (need to verify that my last direct deposit has switched). I use Greenfield Savings Bank (0.75% on checking, without the hassle of a “reward” checking account) and Peoples Bank (1.5% on savings, and other banks’ ATM fees refunded for checking accounts). (For those in Western Massachusetts, I hear Florence Savings Bank is good too).

Switching banks can also be good for your wallet, since the biggest banks almost always pay the lowest deposit rates (and charge relatively high mortgage rates). I look at Bank Deals when I’m looking for a new account.

UPDATE: Andrew Sullivan

There’s A Lot To Say About Goldman Sachs And Everybody’s Saying It

The infamous Matt Taibbi piece in Rolling Stone.

Goldman Sachs returns volley (via NY Post):

The bank’s spokesman, Lucas Van Praag, was more pointed: “[Taibbi’s] story is an hysterical compilation of conspiracy theories,” he wrote in an e-mail. “Notable ones missing are Goldman Sachs as the third shooter [in John F. Kennedy’s assassination] and faking the first lunar landing.”

“We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good,” Van Praag added.

And via Felix Salmon:

Having read your piece about Matt Taibbi’s article in Rolling Stone, I wanted to set the record straight, particularly about “regulatory capture”.

Background: Under the Commodity Exchange Act, the CFTC (for agricultural futures) or exchanges (for energy/metals futures) established speculative position limits. As much as anything else, the limits are intended to prevent market imbalances that would result in failures of the ultimate settlement of the futures contracts.

The CFTC rules exempt “bona fide hedging” transactions from these spec limits. A bona fide hedging transaction was originally understood to be an actual producer/consumer who was selling or buying the underlying commodity and wanted to hedge risk of the price moving up or down. In 1991, J. Aron wanted to enter into one of its first commodity index swap transactions with a pension fund. In order to hedge our exposure on the swap, we wanted to buy futures on the commodities in the index. We applied to the CFTC for exemption from position limits on the theory that even if we weren’t buying the commodity, we had offsetting exposure (in our swap) that put us in a balanced/price neutral position. The CFTC agreed with our argument and granted exemption. By the way, each of the then Commissioners signed off, so it was hardly a secret…

The CFTC published a report in August 2008, indicating that there were few instances when entities would have exceeded spec limits, had they applied to OTC positions.

Yesterday, as you probably know, the Senate Permanent Sub-Committee on Investigations issued a report on wheat futures in which they concluded that divergence between prices for actual wheat v. wheat futures is being caused solely by index investment. The Committee’s recommendation is that hedge exemptions which support indices should be phased out.

Not quite so recently, the elimination of Glass Steagall doesn’t exactly provide a robust argument for regulatory capture. And Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.

Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?

We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.

Taibbi responds:

I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter  like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news cliche about Goldman being the “smart guys” on Wall Street? A lot, for sure).

Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.

Andrew Ross Sorkin documents the fight. Joe Weisenthal at Clusterstock fisks the article.

Megan McArdle

Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire.  But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.  Confronted with this, Taibbi doesn’t back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards.  Instead, he grabs whoever’s nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn’t quite understand.  It’s not that everything he says is wrong, but the bits that are true aren’t interesting, and the bits that are interesting aren’t true.  The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement.  The result is something that’s not even wrong.  It’s just incoherent.

Barry Ritholtz on McArdle’s assertion that there aren’t any villains:

Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly  devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for.  And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.

I have 322 well researched pages that shows as much.

Goldman Sachs was but one of the 5 biggest investment banks that requested from the SEC, and received, an exemption from the net cap rules. This allowed their leverage to balloon from 12-to-1 to as much as 40-to-1.

As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .

McArdle responds:

There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis.  Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis.  Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates.  Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth.  What would be different now?  Nothing of any importance, as far as I can tell.

You can point to many people–thousands of bankers, tens of thousands of realtors and mortgage brokers, millions of homebuyers–who did things I really wish they hadn’t, blinded by greed and wishful thinking and arrogance.  But when the action of any one person, or firm, requires millions of counterparties taking their own stupid risks, I don’t see how you can really name them the villains of the piece.

This will not, of course, please anyone who wants me to tell them how and why we should get the bankers.  For them, the important thing is the conclusion; since we already know it, it is a trivial matter to assemble whatever evidence might help us get the bankers.    And since I am not providing them with convenient reasons to get the bankers, it therefore follows that I must be a paid hack protecting my corporate masters.

Meanwhile, Goldman blogging continues apace. Tyler Durden on Zero Hedge on Goldman 360

One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes? The third thing everyone on Wall Street agrees on is that “internal business purposes” usually (and in Goldman’s case, almost exclusively) means proprietary trading.

Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what “internal business purposes” means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.

Update: several readers have presented some other Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:

You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.

And today, Sydney Williams at Seeking Alpha:

Here we are once again, on the eve of another record earnings report by Goldman Sachs. Are we back to the old days, or on to something new and different?

We can safely agree that the banking crisis is officially over, as this writer and others have recently argued. Whatever we may draw from the Treasury Department and Federal Reserve’s methods, they’ve worked. Confidence is restored, at least enough to allow market-savvy traders to place the kind of aggressive bets that can reap windfalls for bank profits.

Seeking Alpha:

Meredith Whitney, the well-known banking analyst, upgraded her outlook on Goldman Sachs this morning, resulting in the market as a whole making some gains.

We have to give Ms. Whitney her due. After all, she was one of the first to call attention to the problems at Citigroup and other banks, the weakness in the housing industry, and how these might affect the economy as a whole.

However, we think the market’s reaction to Whitney’s comment highlights a serious problem in our nation. Investors today pay far too much attention to quarterly (if not daily) results, and not enough to the long-term picture.

Glenn Greenwald

UPDATE: Kevin Drum has two opinions of the Tiabbi piece. Here:

POSTSCRIPT: Someone also asked Ezra about Matt Taibbi’s takedown of Goldman Sachs in the latest issue of Rolling Stone.  I finally got around to reading it the other day, and my verdict is simple: it was terrible.  Taibbi wrote a terrific article about AIG a couple of months ago, but the Goldman piece was just phoned in, a long series of blustery assertions with essentially nothing to back up any of them.  If he wants to claim that Goldman was the wizard behind the curtain of everything from the dotcom boom to last year’s oil spike, he really needs to produce some evidence for it instead of just saying so.

POSTSCRIPT 2: I just learned that Rolling Stone didn’t actually post Taibbi’s article.  They only posted a set of excerpts, which is why the online version reads like a long series of blustery assertions with essentially nothing to back up any of them.  Unfortunately, unless you read the intro very carefully, it’s not clear that these are merely excerpts.  Instead, it just seems like a very badly written article.

So: I retract what I said for now.  I still suspect that Taibbi is considerably overstating things, trying to construct a dramatic narrative by blaming Goldman for things that are actually sins of the investment community as a whole, but I won’t know for sure until I read the entire piece.

And here:

Well, I’ve now the read the entire piece, and I apologize.  (To Taibbi, that is, not the morons at Rolling Stone, who should have either posted the whole thing or done nothing at all.)  It’s a very good takedown of the modern financial industry and well worth reading.  There are some bits here and there that I’m not sure Taibbi gets quite right, and I do think that he made a mistake in casting Goldman Sachs as the “engineer” of every bubble in the past century rather than merely an unusually big and enthusiastic member of a predatory gang that’s been ripping us off for a long time.  This gives the piece a conspiratorial air that allows Goldman to laugh it off instead of being forced to engage with it, and that’s too bad.  They — and everyone else on Wall Street — should be forced to engage with it.

Beyond that, there are undoubtedly some mistakes in the piece, as well as places where Taibbi goes unnecessarily over the top.  I’m still not sold on carbon permits being the next big bubble, for example.  But those are quibbles.  Overall it’s a striking portait of an industry — not just a single company — of almost unbounded greed and recklessness.  Worth reading.

UPDATE #2: On those profits, Michelle Malkin

Charlie Gasparino in the Daily Beast

UPDATE #3: Arianna Huffington

Pretty much Matt Taibbi’s entire blog, but here’s two posts, here and here.

Ezra Klein

Kevin Drum

Jon Stewart

UPDATE #4: Stephen Gandel at Time

UPDATE #5: More Charlie Gasparino in the Daily Beast

UPDATE #6: Dean Starkman at CJR on Taibbi

Ezra Klein on the Starkman piece

Kevin Drum on the Starkman piece

UPDATE #7: William D. Cohan in Time:

“A recent story in Rolling Stone, of all places, in which the author described Goldman as a “great vampire squid wrapped around the face of humanity,” has been particularly troubling to him. “Oddly enough, the Rolling Stone article tapped into something,” he says in an interview. “I saw it as gonzo, over-the-top writing that some people might find fun to read. I was shocked that others saw it as being supporting evidence that Goldman Sachs had burned down the Reichstag, shot the Archduke Ferdinand and fired on Fort Sumter.” Suddenly a firm that few Americans know or understand has become part of the zeitgeist, the symbol of irresponsible Wall Street excess, the recovery from which has pushed the nation’s treasury to the brink. (See 25 people to blame for the financial crisis.)

It’s an odd contradiction: an excelling company being reviled in a country that embraces the profit motive. And without question, Goldman Sachs under Blankfein has recalibrated, in very large numbers, its place as Wall Street’s most astute, most opaque and most influential firm. In the first and second quarters of 2009, the company earned $5.3 billion in net income, the most profitable six-month stretch in Goldman’s history. Goldman’s stock has more than tripled since its low last November, to more than $160 per share.

The U.S. unemployment rate has risen too, nearing 10%. In stark contrast, Goldman Sachs has set aside some $11.36 billion so far in 2009 in total compensation and benefits for its 29,400 employees. That’s about on pace with the record payout the firm made in 2007, at the height of the bubble. Thanks to Andrew Cuomo, the New York State attorney general, we know that in 2008, while Goldman earned $2.3 billion for the year, it paid out $4.82 billion in bonuses, giving 953 employees at least $1 million each and 78 executives $5 million or more (although Goldman’s top five officers, including Blankfein, declined a bonus).

Goldman’s riches have deflected the spotlight from what should be great story fodder: Blankfein’s personal journey from one of New York City’s poorest neighborhoods to its most élite investment bank — and his astounding rise within Goldman. Instead, he has to explain Goldman’s performance — and connections — in the face of the nation’s epic financial calamity.”

Lawerence Delevingne at Clusterstock:

Somewhere, Matt Taibbi is smiling. There’s something validating about being dismissed by the top dog himself.

Bess Levin at Dealbreaker

New York Magazine:

You’re right, William. It is a crime that the American people have wasted so much time asking questions in an attempt to figure out whether the people controlling all the money in our pension plans and bank accounts are trustworthy and will not completely fuck up the system again and then run into their barricaded second and third homes with their gold bars, leaving the rest of use mewling and starving in the streets. We’re sorry, how selfish of us. Do tell us about Lloyd’s “personal journey.”

Charlie Gasparino in Daily Beast:

Paranoia might not be too strong a word to describe the mind-set. People inside Goldman tell me that some senior executives say they believe the onslaught of negative stories detailing Goldman’s manifold ties to upper levels of government, charges that it somehow fraudulently profited from the subprime crisis, and now the press about the firm’s record earnings is so out of proportion to reality that the coverage contains an element of anti-Semitism—subtly playing off the racist myth of a conspiracy of Jewish bankers controlling the world for their own benefit. (Goldman was founded by a Jewish immigrant, and after years of being run by Gentiles Jon Corzine and Hank Paulson, is once again run by a Jew, Lloyd Blankfein.)

Blankfein, I am told, isn’t paranoid but really concerned about being placed in an untenable position for any CEO who needs to retain talent. If he doesn’t pay his people, many will simply jump ship to other firms—including private-equity firms—that will. If he does, he faces endless negative coverage about how Goldman is making its partners rich at the expense of taxpayers who bailed out the firm last year.

This quandary has resulted in some very serious discussions at Goldman to attempt to spin the bonus issue in the best possible (or least damaging) way. The Daily Beast has learned that Goldman is considering “a menu” of options: One possibility is to pay the vast majority of the bonus in stock. On Wall Street, executives receive a combination of stock and cash, with the cash portion comprising 65 percent of the total bonus. Goldman may just flip that around.

John Cook at Gawker:

Goldman Sachs is taking the whole “bloodsucking squidmonster” thing pretty seriously. CEO Lloyd Blankfein is losing sleep over how to pay out $11 billion in taxpayer financed bonuses without catching hell from anti-Semites like everybody. Heavy weighs the crown.

CNBC’s Charlie Gasparino reports in the Daily Beast that Blankfein is “obsessed” with the hits that Goldman’s image has taken after getting a $10 billion capital injection from taxpayers and $13 billion out of the AIG bailout. He’s “looks like shit” because he’s so worried about what’s going to happen in bonus season, when he has to distribute that $11 billion bonus reserve. He’s looking for a “brand manager” to rescue the firm’s image, and Goldman insiders say that anyone who’s royally pissed off that Goldman is simply harvesting taxpayer money as profits and handing it out to its obscenely wealthy (and occasionally pedophilic) employees in the form of bonuses really just hates Jews

Bess Levin at Dealbreaker:

Two things are troubling in Charlie Gasparino’s latest story on Goldman Sachs, which has apparently been freaking out over how it’s going to manage the 85 Broad haters come bonus season, when Lloyd Blankfein is expected to make it rain golden showers. The first is that you might get the mistaken impression Chaz is an anti-Semite. This could not be further from the truth. Charlie loves Jews. Some of his best friends are Macabis and since I’ve known him he always takes the time to inquire “how the dreidel spinnin’s goin’, Heeb girl” come December. So please, people e-mailing us, get off CG’s ass for the description of current Goldman management below.

UPDATE #8: Dave at The League on Taibbi

Nico, Nico, Nico…

Michelle Malkin:

I noted on Twitter and in my live-blog of Obama’s press conference that the president called on/coached HuffPo’s Nico Pitney in an obvious, pre-planned question on Iranians communicating through social media and the Internet.

The question itself was unobjectionable and Obama’s response was so bland and rambling I don’t remember it.

But what was noteworthy was Obama’s embarrassingly obvious and patronizing coordination of the question. I have no love for the HuffPo people (and vice versa), but really, was such schoolmarm-ish hand-holding by the White House necessary?

Several pieces from Politico. Ben Smith:

The high-profile the administration is giving the left-leaning outlet is a nice case of symbiosis, not entirely unlike the Bush Administration’s close ties to Fox, though the president’s signal that he’d been briefed on the question in advance was particularly unusual.

Michael Calderone

Reporters typically don’t coordinate their questions for the president before press conferences, so it seemed odd that Obama might have an idea what the question would be. Also, it was a departure from White House protocol by calling on The Huffington Post second, in between the AP and Reuters.

CBS Radio’s Mark Knoller, a veteran White House correspondent, said over Twitter it was “very unusual that Obama called on Huffington Post second, appearing to know the issue the reporter would ask about.”

According to POLITICO’s Carol Lee, The Huffington Post reporter was brought out of lower press by deputy press secretary Josh Earnest and placed just inside the barricade for reporters a few minutes before the start of the press conference.

Kathryn Jean Lopez, here and here.

Jason Zengerle in TNR on Smith’s piece:

Not only does Ben compare Obama’s relationship with HuffPo to Bush’s relationship with Fox, he makes the Obama-HuffPo relationship seem even more egregious! But I don’t see how. The only briefing in advance Obama had presumably received on Pitney’s question was that it would be from an Iranian (a fact that the White House press office would have known from reading Pitney’s blog, since he put out a request for questions*). What’s more, the question from an Iranian Pitney chose to ask was a pretty challenging one:

“Under which conditions would you accept the election of Ahmadinejad, and if you do accept it without any significant changes in the conditions there, isn’t that a betrayal of the — of what the demonstrators there are working towards?”

It elicited what I thought was Obama’s weakest and most unsatisfying answer of the presser. I can’t think of any time a question from a Fox reporter produced something like that from Bush.

Steve Benen:

The Politico‘s Michael Calderone was critical, not of the specific question or answer, but that the exchange took place at all: “Reporters typically don’t coordinate their questions for the president before press conferences, so it seemed odd that Obama might have an idea what the question would be. Also, it was a departure from White House protocol by calling on The Huffington Post second, in between the AP and Reuters.”

I can’t speak to the traditional protocol — the AP and Reuters deserve special placement? — but I think it’s unfortunate to characterize this a question “coordinated … for the president.” The White House realized Nico solicited questions from Iran, and the president apparently wanted to answer just such a question. There’s no reason to think this was scripted, or that Obama knew the specific question in advance. The president knew it would be about Iran generally, with an inquiry from Iran, but that hardly makes this inappropriate.

What’s more, let’s also note that this was a good question, pressing Obama on a specific point he wasn’t anxious to address. This wasn’t a pre-arranged softball; it was the opposite.

If the Politico piece is any indication, there’s likely to be a dust-up over this. That’s a shame.

UPDATE: Julian Sanchez and Around The Sphere think alike in our VU references! Anyway, Sanchez:

So, Nico Pitney has been doing fantastic work reporting on the situation in Iran, and the question he asked Barack Obama at today’s presser was certainly a far cry from a Jeff Gannon-style softball. Even so, it was clear at the time—and Pitney has apparently confirmed—that it was coordinated in a broad sense: The White House called up and invited Pitney to pass on a question from one of his Iranian correspondents (though not any particular question), and then in calling on him, Obama specifically solicited a “question from Iran.” It’s great to see a solid reporter get recognition, it’s great to see an online news outlet called on second in the Q&A, but look, we all know it’s not supposed to work like this.

UPDATE #2: Arianna Huffington:

Seems some of the boys can’t seem to understand why the president would have the nerve to call on someone whose Iran coverage has been praised throughout the media, from Charlie Rose to Andrew Sullivan to the Economist.

James Joyner:

My concern in  this case is quite narrow.  I have no real problem with Pitney getting the spotlight.  Despite the fact that he’s a left-leaning activist by profession, he’s done exemplary journalism on Iran.  Nor do I particularly object to Obama’s using Pitney’s aggregation of Iranian responses as a jumping off point.  I am, however, worried about the precedent of a president pre-screening the questions at supposed press conferences.

Had Obama said, in his prepared remarks, something to the effect that “Nico Pitney of Huffington Post has done an extraordinary job of engaging Iranian public opinion and this question in particular deserves an answer,” I would be fine with it.  Instead, though, Obama essentially set up a canned question and gave the impression to a casual observer that it was a tough question from the floor.

If this is a one-off because of the unusual circumstances of in Iran, it’s not a big deal.  But journalists are right to insist that this sort of thing not become the norm.  If the White House is going to pre-select questions, they’re not “press conferences” at all; they’re one-act plays.  And reporters ought not participate in the sham.

UPDATE #3: Matthew Cooper at The Atlantic

Matt Y:

This is, note, the second time a HuffPo reporter has asked a question at a White House press conference, asked a question that was a lot more substantive and interesting than many of the questions from the old-school media, and then prompted a freak-out. I think it would be worth asking who would be better off had that exchange not taken place and Obama instead called on someone else. I’m having trouble finding the answer.

The reality is that there’s a lot of status anxiety among the special class of reporters who do things like attend White House press conferences. In my experience, the kind of reporters who conduct in-depth investigations or write long features or correspond from war zones are facing a lot of economic anxiety about the continued stability of their careers. But the kind of reporters who basically sit around and in virtue of the fact that their employers are important get to ask not-very-interesting questions of powerful politicians and then dutifully write the answers down (or record the answers on tape and have an intern transcribe them) are facing a kind of crisis of prestige and authority. It turns out lots of people can do the job perfectly well, even people who haven’t “paid their dues” or gotten a job at an established media outlet.

Jennifer Rubin in Commentary:

Innovative or fraudulent? If the Huffington Post pretends to be a real news organization, it might want to avoid staging interchanges with officials. What is amazing, of course, is that the president couldn’t manage handling the usual softball questions or work in the information he wanted without faking a Q and A with a willing flunky.

It is hard to know what is worse — the fake policies or the fake presentation. In any event, it seems the “most transparent” administration in history is one of the least.

UPDATE #4: Paul Mirengoff in Powerline:

The proper purpose of a White House press conference is to confront the president with pertinent, well-crafted questions, not to treat all correspondents equally. The White House, in its telling, had reason to believe Pitney was in a great position to ask such a question about Iran due to his direct communications with dissidents. Under these circumstances, Obama provided a service by making sure he called on Pitney.

By tipping Pitney off that he would likely get to pose a question, the White House increased the likelihood that Pitney would carefully select the best possible question. As for Obama, he gained no substantive advantage from knowing that one of his questions about Iran would be from a dissident, via Pitney.

Perhaps Pitney’s moment in the sun will encourage members of the White House press corps from traditional media outlets to use the internet to get ahead of the curve.

UPDATE #5: Michael Goldfarb in TWS:

This botched handoff, which has the president flagrantly teeing up the question — because he doesn’t care how it looks — and then a nervous Pitney unable to adjust under pressure, was just so discordant and clumsy. If Obama had just gone straight to Pitney and commended his good work on covering events in Iran, there wouldn’t have been any big story here (it was, after all, the second time Obama had taken questions from a “reporter” working for a website that is essentially a front for the Democratic party). And if Pitney had just kept his cool and not gratuitously announced that he wanted to ask a question directly from an Iranian after the president had just said precisely that…

It doesn’t matter much now, but it just strikes me that what really burns about this whole setup is that it looked like amateur hour. If the White House is going to coordinate with a journalist on the content of his question, at least do us the courtesy of making it look good. What fun is it being in opposition if the White House is so brazen that our conspiracy theories are proved right before our eyes.