Fat Fingers Dance On The Keyboard And We All Take The Plunge

Tom Lauricella and Peter McKay at WSJ:

A bad day in the financial markets was made worse by an apparent trading glitch, leaving traders and investors nervous and scratching their heads over how a mistake could send the Dow Jones Industrial Average into a 1000-point tailspin.

At its afternoon low, the Dow Jones Industrial Average had plummeted 998.50 points, its biggest intraday point drop ever. The swing from its intraday high was 1010.14 points.

The markets were already on edge before the midafternoon collapse as traders watched televised scenes of rioting in Athens following the Greek government’s approval of its portion of the European Union and International Monetary Fund bailout.

Throughout the day, markets around the globe posted big declines as investors reacted with disappointment to the failure of the European Central Bank to signal any heightened concern about the spiraling Greek debt crisis.

The Dow eventually rebounded to close down 347.80 points, or 3.2%, at 10520.32, its worst percentage decline since April 2009.

Megan McArdle:

Immediate theories:

• It was the computers, stupid.  This seems likely to have been at least part of the problem; the drop was just too sudden, as was the recovery.  Accenture dropped from $40 a share to one cent at some point, and Proctor and Gamble also had an improbably gigantic drop. I’d guess that some trading programs, somewhere, hit the wrong stock price level and went horribly wrong.
• The market knows something that we don’t about Germany.  Now that Greece has passed its austerity plan, the rest of the eurozone has to go along.  Germany, the single biggest player, votes tomorrow, and maybe someone knows we’re headed for a nasty surprise.
• The market knows something that we don’t, but ought to, about Greece.  Greek approval of the austerity plan should have perked things up.  Instead, the markets are in turmoil.  And maybe they’re right to be.  Passing an austerity plan doesn’t guarantee that it will work; Argentina was going through governments like paper plates right before it terminated the dollar peg and defaulted.
• The market doesn’t know anything we don’t, but some idiots panicked when Mohamed El-Erian said that Greek contagion was on the verge of spreading.  One of the more comforting explanations; if so, the idiots seem to have thought the better of it.
• Someone unwinding a giant euro-yen trade touched off some sort of temporary panic as people fled risky assets.  That’s au courant on Bloomberg.  Somewhat comforting–but not very, because if the markets are this vulnerable to panic, there’s an underlying anxiety that may blossom into something worse.
• Some hedge or bond fund manager is manipulating the market for personal gain.  Maybe.  But a collapse this broad across multiple asset classes is pretty hard to orchestrate, so not very likely.

Update:  Via Twitter, NASDAQ seems to be confirming that at least part of the problem was a faulty Proctor andd Gamble quote.

Daniel Foster at National Review:

So, now the word is that the sell-off was set in motion or exacerbated by a Citigroup trader “fat-fingering” a trade — literally pressing a ‘b’ for billion instead of an ‘m’ for million or somesuch — on Proctor & Gamble, which went off a cliff around 2:30 P.M.

My guy on the Street characterized the ensuing cascade thusly:

“. . .then the equities desks on the street were all told to reign [sic] in risk and then computers kicked in.”

In other words, P&G’s 37 percent nosedive was only responsible for 172 points of the 992.60 the Dow lost in the slump. The rest was market reaction — and part of that was computerized and automated.

Henry Blodget at Business Insider:

Some idiot may well have made a typing error–allegedly entering a sell order for $16 billion when s/he meant $16 million. And there may well have been a lot of other electronic trading problems as traders freaked out–stocks trading for a penny, stocks gapping down, and so forth.  And these may have contributed to the panic.

But anyone who focuses on what “went wrong” with systems or trading errors is missing the forest for the trees.

More than an hour after those freak “trading errors,” the DOW closed down 350–a very sharp decline. The DOW is now off more than 800 points from its recent peak.  After months of lower and lower volatility and more and more complacency, the market’s tone has changed significantly in recent days.  And not for the good.

So what’s the real reason the market crashed this afternoon?

Because markets sometimes crash.

Seriously. That’s how markets behave–especially on the downside.  And it doesn’t take a long look at the fundamentals to figure out why some traders (sellers) might have been quick to dump their stocks today and lock in their gains. Or why other traders (buyers) might have decided to wait a few minutes to see just how good prices were going to get.

Marketplace at NPR

Felix Salmon:

The timing of that 100-point fall could not have been worse: stocks had started selling off about five minutes earlier, and so the 100-point drop came into a market which was already getting jittery and panicked. The velocity and severity of that drop in the Dow immediately triggered stop-loss selling in the market more generally, which then started feeding on itself: even as P&G’s share price was recovering, bids were falling away rapidly in the other 29 Dow components, and at one point the Dow was down just a hair short of 1,000 points on the day.

But the fact is that none of these numbers are all that meaningful: what we were seeing was traders flailing around in a context of limited information and liquidity, trying to get a grip on what was or wasn’t going on. There was always the possibility, after all, that the sellers knew something they didn’t, and that stocks were actually falling for a reason. So it took a few minutes for the market to realize that it was all just market volatility — and therefore a great buying opportunity for any trader.

It’s been a very impressive day to learn how the stock-market sausage is made: I think we just saw the largest intraday fall, in point terms, that has ever happened. But the bigger lesson is that in the short term, any market can fail temporarily. The question is whether the jitters from this afternoon are going to mean increased volatility and risk aversion going forwards. My feeling is that, yes, they both will and should.

Ezra Klein:

But whatever the ultimate trigger, the drop was too big for the cause to be this uncertain. What you’re seeing here is a very, very fragile market. There’s so much unknown risk out there — notably, but not solely, in Europe — that quick movements are sending everyone running for the door. That is to say, we’re seeing the return of financial-crisis psychology, where people fear because they don’t know. That’s why very calm people like David Cho are saying very scary things.

UPDATE: Robert Wright and Jim Pinkerton at Bloggingheads

The Sacking Of The Vampire Squid

Daniel Foster at The Corner:

Breaking over at the Wall Street Journal:

SEC charges Goldman Sachs with civil fraud in structuring and marketing of CDOs tied to subprime mortgages.

Stay tuned.

Stephen Spruiell at The Corner:

There seems to be some confusion over what the Goldman Sachs-SEC lawsuit is about. This isn’t just about the fact that Goldman sold its clients some bonds and then later bet against them. In my view, that wouldn’t be so bad. Goldman would be playing two independent roles in that story — broker on one side, trader on the other — and following independent strategies to hedge against market risk. Micromanaging investment banks’ hedging strategies could have all sorts of undesirable unintended consequences.

But the fraud alleged here is more serious than that, and it concerns the way Goldman structured and sold a particular bond, a structured product known as a Collateralized Debt Obligation (CDO). These products are not like ordinary stocks and bonds, which are pretty straightforward investments. They’re made up of the cash flows of a variety of underlying assets — in this case, pools of mortgages. There was a heavy demand for these products during the housing boom, and investment banks such as Goldman were under pressure to keep churning them out. The charge against Goldman is that at least one of these products, a CDO called Abacus 2007-AC1, was built to fail.

The outside consultant Goldman hired to select which mortgages would go into the CDO, a hedge-fund manager named John Paulson, is now known as one of the most famous housing shorts ever — he made an estimated $3.7 billion betting that these kinds of mortgage-backed bonds would go bad. So it is pretty disturbing that Goldman would bring him in as an “independent manager” to help it construct a CDO and not disclose this fact to the CDO’s buyers.

It would be like holding a basketball game, letting a Vegas sharp secretly select the players on one of the teams, and then presenting it to the public as a fair game. The sharp would have an incentive to select the worst players for his team and then bet against it. According to the SEC, that is exactly what Paulson and Goldman did

Henry Blodget at Clusterstock:

Based on the scan, we have not seen any screaming smoking guns.  There is certainly evidence that Goldman and Tourre said one thing internally and another externally.  It also appears that the information that was omitted in the external marketing materials would likely have been of interest to investors.

That’s not proof of fraud, but, as represented by the SEC, it looks bad.  Goldman will want to make it go away (read: out of the headlines) as quickly as it can.

Importantly, this is NOT a criminal indictment.  It is a civil lawsuit.  The SEC and Justice Department usually work together, so the absence of a criminal charge suggests that the Justice Department did not feel criminal charges were warranted.

So here’s what’s likely to happen to both parties:

Goldman Sachs will have to write a big check, and then it will be fine: Goldman will likely say the charges have no merit and then, in a month or two, settle with the SEC for a few hundred million dollars (chicken feed).  Goldman will then defend itself against the civil lawsuits that arise from this and probably settle those as well.  There may also be follow-on lawsuits for other CDOs and products Goldman created.  Those, too, will likely be settled or dismissed.  Bottom line: This will cost Goldman some money, but not enough to matter to investors.

Fabrice Tourre will be placed on administrative leave or fired (a.k.a., thrown under the bus).  He will then spend the next couple of years testifying in this and other follow-on civil lawsuits.  The SEC will probably demand a cash settlement from him, too, and boot him out of the industry. Based on our scan of the allegations, Tourre was involved in every aspect of the structuring and marketing of the CDO in question.  The complaint includes snippets of communications in which Tourre describes the CDO one way internally and another way externally.  Again, this is not proof of fraud, but, at least as represented by the SEC, it looks bad.  Tourre will likely want to fight the charges, especially if he thinks they’re b.s., but it will be too risky and expensive for him to do so, so he’ll likely settle.  Having made such public allegations, the SEC will make sure that any settlement produces an appropriately tough-looking headline (thus the fine and industry dismissal).

Felix Salmon:

With this suit, the SEC has finally uncovered the real scandal behind the Abacus deals. The NYT tried, back in December, but it didn’t quite get to the nub of the story — although Paulson was mentioned in the NYT story as someone who was generally short the subprime market, there was no indication that he played any role in structuring the deals. Neither was there any mention of ACA.

The scandal here is not that Goldman was short the subprime market at the same time as marketing the Abacus deal. The scandal is that Goldman sold the contents of Abacus as being handpicked by managers at ACA when in fact it was handpicked by Paulson; and that it told ACA that Paulson had a long position in the deal when in fact he was entirely short.

Goldman Sachs has lost more than $10 billion in market capitalization today, in the wake of these revelations. Good. It can go long markets and it can go short markets. But it can’t lie to its clients. That’s well beyond the pale.

Update: The Abacus pitch book can be seen here.

Naked Capitalism

Jesse Eisinger and Jake Bernstein at ProPublica

Matt Taibbi:

Goldman, Sachs is getting busted, finally, for what to me is one of the most devious and brilliant crimes of the last decade.

I can’t get into this too much because I have other material coming out about it. But the upshot of it is that GS teamed up with a hedgie named John Paulson (no relation) to make the biggest ball of subprime shit they could, got short of it by credit-default-swapping it, then roped third parties into buying it. It’s kind of awesome in a way, and I’m sure it was fun while it lasted.

But now… I’m reminded of the scene in Goodfellas when the cops bust Henry…:

Bye bye, dickhead!

Megan McArdle:

One wants to be cautious about saying that Goldman Sachs is definitely guilty.  Financial crises produce immense political pressure for securities regulators and attorneys general to go head-hunting, and the cases often turn out to be weaker than they seem once the defense gets a chance to speak.  The case against two Bear Stearns hedge fund managers, for example, turned out to hinge on horrific-sounding quotes that had very clearly been ripped out of a context that totally changed the implications. Which just goes to show how heavy the pressure is on prosecutors to make these cases.

But it certainly sounds as if the SEC has the goods here.  Felix Salmon has gone through the pitchbook, and pronounces it free of any indication that a third party with a strong economic interest in the transaction was picking the securities to be included.  I will be interested to hear the defense rebuttal.  It should, at the very least, be entertaining.

Was anyone hurt by it?  That’s less clear–at that point, the market still had a bit of froth left, and people might well have bought the securities if Paulson’s interest had been disclosed.  But that doesn’t matter.  It’s hard to imagine anyone making an argument that Goldman didn’t have an obligation to disclose this information–and the fact that they failed to disclose seems to indicate that Goldman, at least, thought that the information would adversely impact the sale price.

I suspect this case will get a lot of public traction.  At this point, what galls people is not so much the stupid behavior that led to the bailouts, but the blatant self-dealing that seems to have gone on.  Unfortnately, much of that self-dealing is not actually illegal . . . so when we find an example that is legally actionable, the public and the court system are bound to jump on it with both feet.

Atrios

Stephen Gandel at The Curious Capitalist at Time:

So there you have it. Finally, the financial crisis gets its first major fraud case. Investment banks created complex securities that increased the risks of in the financial system. Most then held on to the securities because they didn’t know what they had. Goldman instead came up with an elaborate scheme to lay off the risk on unsuspecting investors. Either way, Uncle Sam had to come in a clean up the mess. As the SEC says, in selling something they knew was worthless, Goldman was no different from the medicine man of old. It’s a fraud as old as time.

The first question was who was damaged here. The answer is all of us. First of all, the investors who bought the securities lost about $50 billion on them $1 billion. (That’s the figure for the deal in question by the SEC. But I believe if you figure in all the deals synthetic deals that Goldman set up the investor loss is much larger.) Those investors were mostly pension funds. Second, Goldman insured these purposefully useless mortgage bonds with AIG. So all of us, taxpayers that is, had to pay up for those losses when AIG had to be bailed out. So this suit is really just a case of the government trying to get its money back from Goldman. That’s something we should see more of.

Two more questions: Does this end Blankfein’s reign as head of Goldman? I think so. It’s a big deal for an investment bank to be charged with securities fraud. And it is not just a coincidence that Goldman would get hit with a fraud case when Blankfein was CEO. Even though he is not named in the complaint, Blankfein is to blame. He pushed the firm to become less of an investment bank and more of a trading behemoth.  And this is the result: A brilliant trade that was so brilliant the Goldman people forgot that it also might be fraud.

Last: So are hedge funds more to blame in the financial crisis than we thought? It certainly looks that way. When the hedge funds went before Congress a year or so ago, they were praised–Paulson included. Now it looks like Paulson masterminded a trade that cost the government tens of billions of dollars. I would hope his next Congressional meeting will be less pleasant.

Lucas van Praag at Goldman Sachs:

The Goldman Sachs Group, Inc. (NYSE: GS) responds to a complaint filed by the SEC today.

The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

UPDATE: David Goldman (Spenger) at First Things

Eli Lehrer at FrumForum

Paul Krugman at NYT

Tom Maguire

Marian Wang at ProPublica

UPDATE #2: Goldman settles. Felix Salmon

Naked Capitalism

Daniel Indiviglio at The Atlantic

Nobody Gets Shot, Hit In The Knees Or Loses Their Late Night Talk Show Over This, Do They?

Foster Kamer at Village Voice:

Gawker Media owner Nick Denton Tweeted earlier this evening, asking if the rumors he’d heard about Business Insider editor John Carney’s firing were true. Well, Nick, here’s your answer: John Carney, managing editor of financial news and gossip vertical Clusterstock at Business Insider, was let go this afternoon by B.I. owner Henry Blodget, we’ve confirmed with sources familiar with the matter.

This…is going to take quite a few people by surprise. Nobody from the company we spoke with certainly saw it coming, either.

We’re told Carney was fired by Blodget this afternoon, and it was speculated that this was the result of the last few weeks of disagreements between Blodget, publisher Julie Hansen, and Carney over how to best run Business Insider: Blodget wanted more sensational, pageview-grabbing posts and click-friendly features like galleries, while Carney wanted to put forth breaking news scoops that told a longer narrative. It was also speculated that Carney, one of the highest paid members on the Business Insider staff, wasn’t bringing the traffic numbers to sufficiently satisfy Henry Blodget, given his high profile within the financial reporting world, but that Clusterstock’s homepage had the highest traffic of all the verticals at Business Insider during Carney’s tenure, and that his own stories generated “tons of [unique visitors].”

Felix Salmon:

The mention of Carney’s salary is also indicative of a newfound focus on cashflow at TBI. There’s a finite number of name-brand financial bloggers out there, and when you hire one of those brands, you do so in large part for the respect that gives your franchise as a whole, rather than doing silly math about whether the ad revenue from his pageviews justifies his monthly paycheck. Blodget wants to be taken seriously as a financial news outlet: he wants to compete directly with the FT. And to be able to do that, he’s going to have to be able to hire talent. After today’s events, however, he’s going to find it extremely difficult to hire any respected financial journalist with a reasonably secure job.

Carney certainly has his idiosyncrasies, and he wouldn’t last a week at Bloomberg, but he’s perfectly open about them, and one of the great things about media companies in general and blog companies in particular is that they’re pretty good about letting the talent do what it needs to do, just so long as the stories keep coming. And Carney always kept the stories coming. What’s more, the beating heart of Clusterstock is the dynamic duo of Carney and Joe Weisenthal; now that he’s fired Carney, Blodget must know that he risks losing Weisenthal as well. If he loses them both, he’ll rapidly become something like 24/7 Wall Street or Minyanville: a site with lots of low-quality traffic and generally uninspiring editorial content. After all, left to his own devices, Blodget is prone to publishing silly and irrelevant stuff like this which is barely worth tweeting.

Kamer’s sources within TBI certainly don’t seem happy about this news, and on its face there’s a lot more downside than upside for Blodget in firing Carney. I don’t worry about John: he’s a huge talent who will certainly land on his feet. But if I was an investor in TBI, I’d be very worried about Blodget, and I’d be phoning him up right around now asking him what exactly he thinks he’s doing. Because this kind of thing is likely to lose him a lot of respect in the finance and media communities.

Update: It’s worth noting that Henry Blodget put a post up last week with the headline “The Internet Is Making Us Shallow and Vapid! (Or Maybe We Were Just Shallow And Vapid To Begin With)”. Clearly he’s come to peace with appealing to the shallow and vapid. And once he did that, I’m sure the decision to fire Carney was made easier.

The Blodget/Salmon TwitSpat at Clusterstock

Henry Blodget at Clusterstock:

A Reuters blogger attacked us on Twitter this afternoon.

Having gotten used to having his own journalistic efforts funded by a multi-billion-dollar finance-terminal business (which we, sadly, lack), he was apparently appalled that we care about producing content that people want to read.

Many of the folks kind enough to follow us on Twitter were bored to death by the exchange that followed.  Some, however, were kind enough to say they enjoyed it.

In the hope that there might be others who would have enjoyed it had they been wasting time following Twitter this afternoon, here it is.

More Blodget:

Yesterday, a Reuters blogger named Felix Salmon attacked Business Insider for, in effect, producing content that readers want to read.

Felix didn’t put it that way, of course, but he does seem to feel that a publication’s writers and columnists should not be concerned with whether readers actually want to consume the content they produce.

We, needless to say, disagree.  We exist for you and because of you.  And if you don’t want to consume the content we produce, we can only conclude that it’s because we’re doing a lousy job.

Felix’s views are shared by some journalists who work in mainstream media organizations, where there is still a lot of money coming in from old business models and where long, text-heavy content is the primary storytelling form (And no wonder: Newspapers sell more ads when they fill more pages, so stories run long).  This is especially true at Reuters, of course, where the bloggers’ salaries are paid by a massively profitable global trader-information terminal that Wall Street folks pay thousands of dollars a month for — a terminal business that, by the way, the bloggers’ efforts don’t help in any way.

Let me be the first to tell you that we would LOVE to have a multi-billion-dollar global trader-terminal business to fund our online news operation.  It would make life a lot easier and more luxurious.  We hope to someday have a business like that.  As yet, we don’t.

More importantly, we also think Felix’s criticism of our content is grossly unfair.  We’re publishing a huge amount of content that is exactly what he thinks we should be producing — long, text-heavy analysis, original reporting, and commentary.

Salmon responds:

At this point, even I’m bored of the Salmon vs Blodget wars. But Henry has decided to grossly misrepresent my views, so it’s worth explaining in a bit more detail what I actually think about blog content and how it can and should be turned into money.

One of the first rules of blogging is to link a lot, especially if you’re writing about someone who has made their views freely available on the internet. For instance, my post on Wednesday about Blodget firing John Carney has seven external links, three of which are to Business Insider; my post on Friday about Business Insider’s economics had eight external links and one internal link, with six of the external links going either to Blodget’s site or his Twitter feed.

If you look at Henry’s post about me, however, it includes the word “Felix” five times, but he doesn’t link to me — or to anybody else — at all. Instead, he larded his post up with lots and lots of internal links. It’s easy to get from Henry’s post to somewhere else on his site; it’s impossible to get from his post to anywhere else on the internet, unless it’s someone who’s paying him for the privilege of advertising on TBI.

This is important, because Henry talks about how I “seem to feel” and about how “Felix’s criticism of our content is grossly unfair”. It’s simply wrong to blog such things without linking to the criticism in question and allowing your readers to make their own minds up about whether you’re characterizing it accurately — especially when Henry doesn’t even bother to quote me directly in his piece.

Now because Henry doesn’t quote me or link to me directly, it’s not clear exactly what he’s talking about. But the one thing that’s pretty clear is that he thinks that I think that TBI is failing to produce “long, text-heavy analysis, original reporting, and commentary”. Well, for the record, I don’t think that. But his tweetifesto does make it pretty clear that he judges such content in exactly the same way as he judges a dashed-off blog entry illustrated with a picture of two hot babes kissing: by how many pageviews it generates.

If you’re going to judge all stories using that particular yardstick, then it’s pretty obvious that you’re going to end up with lots of cheap posts with provocative headlines and/or photographs, and lots of slideshows which can generate dozens of pageviews per reader per post. And you’re going to end up firing people who are better at more thoughtful, longer-form content.

TBI’s lead developer, Ian White, left a comment on Henry’s post saying that TBI has published 2,547 stories in March to date — all with an editorial staff of 15, plus three interns. Ignoring weekends for the sake of simplicity, that works out at 8.5 posts per person per day. It’s the more-is-more sweatshop model: never mind the quality, feel the quantity. If you throw enough stuff up there, something’s bound to be a hit. And if you spend too much time and effort on any one post, the opportunity cost of doing so is large: you could be generating more pageviews by writing more, shorter pieces, or — better — putting together a slideshow instead.

This is a model which works until it doesn’t. It’s undoubtedly true that the more posts you put up, the more pageviews you get, and when you’re selling ads on a CPM basis, every extra pageview means extra revenue. It’s also true that if an airline charges a passenger $25 for checking a bag, that’s $25 of revenue it wouldn’t have had otherwise. But charging money for checking bags can result in lower revenues overall, and chasing pageviews can do likewise.

Choire Sicha at The Awl:

What do you do after you’ve fired blogger John Carney as managing editor of Clusterstock on grounds of lack of cheap sensationalism? Why not have a snippy little girl-spat with Reuters finance blogger Felix Salmon! Go Henry Blodget, go! Show the tweens how it’s done.

Also, you know what? The Internet: Let’s Get Rid Of It.

Elizabeth Spiers:

I don’t agree with everything Henry Blodget has been saying, but between Blodget and Felix Salmon, Blodget sounds like someone who runs/has run a new media business before and Felix sounds like someone who’s never been anywhere near the business side. (And I say that with the caveat that Felix is a smart and agile writer. But I think he’s very naive about the granular economics of an online biz.)

Heather Horn at The Atlantic, with the tweets:

Here, we’ve edited it for readability, included some nasty one-liners from the bystanders, and tossed in the satisfying denouement.

• Salmon: “[Blodgett’s] business model: Take a story about M&A fees associated with AIG. Illustrate with 2 hot babes kissing. http://bit.ly/dexECw”

• Blodget: “[Salmon] blasts appalling collapse of journalistic standards: Illustrate boring stories with 2 hot babes kissing.”

• Salmon: “there are 2 journalistic issues here: the pic; and the fact that you’re running boring stories … there was no reporting involved in this story, yet it involved a significant amount of time to write it & find a pic.@nicknotned rightly says that the old days of link-plus-snark are over. Replacing with link-plus-babes-kissing is self-defeating … it’s like crack cocaine for blogs. You get a short-term high, but at the cost of long-term health and sustainability.”

• Blodget: “Wow, check out what Reuters is paying [Salmon] to do all day: http://bit.ly/92eVl2 Can I get a job at Reuters?”

• Salmon: “no.”

• Blodget: “Can’t figure out who [Salmon] works for now — Columbia Journalism Review, McKinsey & Co., or CEO of Business Insider? … I mean, it is really astounding that Reuters pays [him] huge money to complain about things on Twitter all day …”

• Salmon: “your business model became news when you fired [John Carney]. That’s why I blogged it http://link.reuters.com/qam25j and am tweeting it.”

• Samurai Trader (unrelated Tweeter who starts attacking Salmon halfway through): “[Salmon] is a bitter Brit stuck in the States with a shit blogging job. If his research had value, he’d work for a fund. $$”

• Blodget (to Samurai Trader): “Well, [his] writing is excellent. That part I get. I don’t get why Reuters paying him to bitch/tweet at others” (turning back to Salmon)  “if business model really the issue, can we have a $10 billion finance terminal cash-gusher to fund our newsroom with? … If you give us $10 billion a year to fund our newsroom, I promise we’ll publish some stuff that you like to read … And, by the way, one of the first things I’m going to do with that $10 billion is hire you. Because you’re excellent.”

• Salmon: “and then the second thing you’ll do is fire me. Because I don’t create enough slide shows.”

• Blodget: “But we can’t afford you if you just noodle around bashing people on Twitter all day”

• Salmon: “damn, you’re micromanaging me already, and you haven’t even hired me yet!”

• Blodget: “Okay, back to this glorious waste of time (thank goodness I’m the boss or my boss would be an idiot not to fire me … First, a confession: That tweet about firing you for not making slideshows was brilliant. I almost choked in sandwich line … But of course it’s not really about slide shows. It’s about producing content people want to read … Specifically, unless you’re subsidized by a trader-terminal, it’s about being read by enough people to pay your $ … And that’s where, honestly, I would be a bit worried about hiring you. Because you don’t seem to think that should matter … And now, unfortunately, although this is great fun, I have to get back to work. Because otherwise we’re going to go bankrupt … And then you would have one less site whose journalistic standards and business strategy you can insult!”

• Salmon: “RT @Awl: Henry Blodget Isn’t Making Working for Him Any More Attractive — http://www.theawl.com/?p=32308″

• Blodget: “Reuters blogger attacks us on Twitter. We respond. http://bit.ly/cAhfTH”

• Salmon: “Of course he turns it into a 25-page slideshow :-)”

• Blodget: “:-)”

• Salmon: “of course you cut out the ‘can I get a job at Reuters’ / no’ exchange…”

• Blodget: “Ahhh… apologies. I didn’t realize what that “no” referred to. I’ll add it.”
• Salmon: “RT @ChadwickMatlin: @hblodget turning his twitspat with @felixsalmon into a slideshow either tonedeaf irony or brilliant postmodernism”

Mike Taylor at Fishbowl NY

Andrew Sullivan

More Kamer at Village Voice:

So: this thing over? Smoke cleared? We got answers from both Blodget and Salmon on the entire affair. Granted, they’ve done a pretty good job of speaking on it themselves, but we figured it’d be worth it to throw them a few questions regarding less the argument’s subject matter, but more on the argument itself. And, of course, we got far, far more than we asked for:

Have you seen an increase in traffic because of John’s firing/the “discussion” between the two of you?

Henry Blodget: No. We’re large enough now that dust-ups only generate meaningful traffic when they’re with really high-profile folks. Felix is well-known and well thought-of in New York media circles (including at our shop), but most people in the real world have never heard of him.

With respect to John, he’s a good writer and a great guy, and we’ll miss him.

Felix Salmon: I don’t actually look at my traffic figures, so I don’t know the answer to that. But if I did get an increase in traffic, it probably wasn’t the core business-and-finance readers I was hired to write for. I should imagine that most of them sensibly ignored the whole thing. I did get a couple of hundred new Twitter followers, though.

Do you have any personal animosity towards Henry/Felix? Do you think he has any towards you?

Felix Salmon: No, and no. I don’t know if it’s germane, but I have *not* spoken to Carney about all this. Yet.

Henry Blodget: I was annoyed a few days ago when Felix insulted our entire staff, but I’m over it.

Henry, you’re clearly not of the mindset that writing for an audience and writing “good” content are mutually exclusive terms. But do you think there’s any difference between writing what people want to read and writing high-quality content?

Blodget: I absolutely think people want to read high-quality content, and our goal is for everything we produce to be top-notch. Where I think I differ with some traditional media folks is that, online, high-quality content takes many forms.

Online, high-quality can be everything from a 3,000-word essay to a 300-word analysis to a 9-word quote. It can be a single image with a telling headline. It can be a video, or a series of well-chosen links. It can be a well-organized multi-page presentation composed of graphics, images, and text.

All of those types of content can be produced well (high-quality) or badly (awful.) And whether they are high-quality or not will make all the difference in whether readers flock to your site or ignore it.

Felix, Henry seemed to imply that you think writing for an audience and writing “good” content are mutually exclusive terms. If you were given B.I. and were told to make it profitable now, how would you go about doing it? What’s the better way for Henry to do it? Is there one?

Salmon: Right, as I said about Politico today, if you write good stuff that a small insidery elite needs to know, mass traffic is likely to follow — no need for hot babes kissing or endless listicles. Meanwhile, your brand value when it comes to other monetization strategies will be vastly improved — it’s a lot easier to imagine people paying to go to a Politico conference than it is to imagine them paying to go to a conference organized by someone who’s proud to be “the Hooters of the Internet”.

More generally, if Henry has a need to be profitable now, that only confirms what I speculated in my original “Blodget fires Carney” post about a cash crunch at TBI. He has a VC-funded business model, and as such ought to be willing to lose money now if he’s building brand value for the eventual exit. If he isn’t being given the freedom to do that, that’s a sign that his investors have run out of faith and/or patience and/or money. And no, I don’t really have advice for a VC-backed CEO in that situation.

For fans of old-school New York media wars, this was fun. But is it “too insidery” for anyone outside of New York media to care?

Probably. That said, sure, it’s obviously making-of, behind-the-scenes action taking place in public, but it’s not irrelevant. Backroom accounts of the fights that yield the manner in which Washington, D.C., and Hollywood function become bestsellers often because they’re stories of how things we let affect our lives and consume come to be, and the insanity behind them from which they’re produced. The entertainment value of a widely read writer and the owner of a network of sites having a public war of words aside? It was a fairly educating experience, about a perpetually topical struggle — what makes “good” content and what makes “cheap” content — seen through two wildly different media perspectives. There’re worse, more pointless spats we could’ve watched. This one yielded decent results, and maybe a few people’s minds were changed on the way they view these issues after hearing opposing perspectives on them. Maybe everyone learned something. Maybe we all moved forward.

Not likely. But still. Maybe.

This is what Biggie and Tupac sound like on the same track. Pretty dope. Guys, don’t shoot each other.

Juli Weiner at Vanity Fair:

Their disagreement was perhaps the apotheosis of the perennial page views vs. ethics debate: Salmon accused Blodget of resorting to slide shows and photos of attractive women to lure in readers; Blodget responded that Salmon was being naïve. When S.E.O. deity/Gawker overlord Nick Denton stepped in and endorsed Team Blodget, the Tumblr-ing and Twittering masses were torn asunder. Now, after the fog of war has cleared, both Blodget and Salmon have weighed in on the controversy.

“[The Village Voice]: Do you have any personal animosity towards Henry/Felix? Do you think he has any towards you?

Felix Salmon: No, and no. I don’t know if it’s germane, but I have *not* spoken to [recently fired Business Insider reporter John] Carney about all this. Yet.

Henry Blodget: I was annoyed a few days ago when Felix insulted our entire staff, but I’m over it.”

Despite the lack of (public) personal animosity toward one another, both men still affirmed their original positions. Blodget defended his attention-grabbing editorial style: “Online, high-quality can be everything from a 3,000-word essay to a 300-word analysis to a 9-word quote. It can be a single image with a telling headline. It can be a video, or a series of well-chosen links. It can be a well-organized multi-page presentation composed of graphics, images, and text.” Salmon still condemned overly click-friendly content: “[I]f you write good stuff that a small insidery elite needs to know, mass traffic is likely to follow—no need for hot babes kissing or endless listicles.”

The truth, as it is wont to do, probably lies somewhere in between the two extremes—which is why this post about two journalists arguing about ethics is accompanied by a photo of a naked Gisele on a horse.

Beware Goldman Sachs Bearing Gifts

Beat Balzli at Speigel:

The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.

Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. “Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

Fictional Exchange Rates

Such transactions are part of normal government refinancing. Europe’s governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

This credit disguised as a swap didn’t show up in the Greek debt statistics. Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives. “The Maastricht rules can be circumvented quite legally through swaps,” says a German derivatives dealer.

In previous years, Italy used a similar trick to mask its true debt with the help of a different US bank. In 2002 the Greek deficit amounted to 1.2 percent of GDP. After Eurostat reviewed the data in September 2004, the ratio had to be revised up to 3.7 percent. According to today’s records, it stands at 5.2 percent.

At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005.

The bank declined to comment on the controversial deal. The Greek Finance Ministry did not respond to a written request for comment.

Felix Salmon:

How might a deal like this work? Let’s say that Greece issues a bond for $10 billion, which it would then normally swap into euros at the prevailing interest rate, getting $10 billion worth of euros up front. In this case, it seems, the swap was tweaked so that Greece got $11 billion worth of euros up front — and, of course, has to pay just as many euros back when the bond matures. Essentially, it has borrowed $11 billion rather than $10 billion. But for the purposes of Greece’s official debt statistics, it has borrowed only $10 billion: the extra $1 billion is hidden in the swap.

This wouldn’t be the first time that Goldman came up with a clever capital-markets deal to help a European country get around the Maastricht rules: as far back as 2004, Goldman put together something called Aries Vermoegensverwaltungs for Germany, in which Germany essentially borrowed money at much higher than market rates just so that the borrowing wouldn’t show up in the official statistics. And according to Balzli, Italy has been doing something almost identical to the Greek swap operation, using a different, unnamed, bank.

It’s a bit depressing that EU member states are behaving in this silly way, refusing to come clean on their real finances. But so long as they’re providing the demand for clever capital-markets operations like these, you can be sure that the investment bankers at Goldman and many other investment banks will be lining up to show them ways of hiding reality from Eurostat in Luxembourg.

Tyler Cowen:

From what I understand of the Maastricht standards, they are far less stringent than banking regulation, even in places where banking regulation is relatively lax.  Is the premise that governments are more trustworthy and more transparent?  Or is the premise that governments should be allowed to do what banks cannot?

Here is gloss on the Sophoclean chorus on debt; you may need to scroll down to the paragraph on lines 151-58.

Marc Chandler at Seeking Alpha:

It is not unusual for sovereigns, including Greece, to borrow in foreign currencies, like dollars, yen and Swiss francs and swap back into euros. The article claims that the US investment house arranged a cross currency swap for Greece back in 2002 but gave exchange rates that, in effect, created for Greece an extra billion dollars. Of course, the swap will have to be unwound, but it was in effect off-balance sheet and was not picked up by the stats office.

Many observers have already noted problems with the Greek accounting methods which have sometimes not included defense spending in the budget calculations and have also sometimes not included the debt owed to hospitals under its social programs.

Greek bonds as well as the other weaker credits in the euro zone are rallying today. But this could very well prove to be a one day wonder if we are right and no EU bail out will be forthcoming tomorrow.

Instapundit:

This is interesting in itself, but it makes me wonder how much similar chicanery is out there undiscovered . . . .

John Cole:

At this point, Goldman Sachs should replace SPECTRE as the global villain in any future Bond movies.

UPDATE: Calculated Risk

Henry Blodget at Clusterstock

Meep, Meep, Mr. Geithner

Hugh Son at Bloomberg:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

Dealbook at NYT

Henry Blodget at Clusterstock:

Bloomberg unearths more details on the nauseating bailout of AIG and the 100-cents-on-the-dollar payouts to Goldman, et al.

Once again, Tim Geithner was in charge.

Geithner will probably say he ordered AIG to conceal the details of the bailout to save the world. (This seems to be the generic excuse for everything that happened in the fall of 2008).

We suspect there was another reason: The details were outrageous.

Felix Salmon:

Was the Fed demanding secrecy because, as Henry Blodget says, it wanted to keep the “outrageous” details of the government bailout a secret? Yes, that’s probably part of it. And maybe there was an element of worry that public disclosure would make it more obvious what the Fed’s Maiden Lane funds comprised, making it easier for the market to try to trade against them.

But mostly I suspect that this was just a knee-jerk thing, with Fed officials (yes, Tim Geithner, that means you) and their lawyers always wanting to tell the public only what they wanted the public to know, and to keep everything else secret. If you read Sorkin’s Too Big To Fail, one of the themes running through it is that public-sector officials were in serious panic mode for months, and were convinced that things were much worse than the markets and the press were indicating. It seems they thought that if they just kept things secret, maybe the markets wouldn’t find out, and could keep on running in thin air indefinitely. A bit like in the Road Runner cartoons: it’s only when you look down and see how bad things are that you actually plunge.

Jim Geraghty at NRO:

In a sane world, Treasury Secretary Tim Geithner would be cleaning out his desk right now, right?

Ed Morrissey:

Almost a year ago, Democrats hyperventilated over the machinations of AIG execs and screeched about their bonuses.  Now it appears that the problem wasn’t AIG at all, but the sneaky way the New York Fed and Geithner rode to Goldman Sachs’ rescue, and that of other banks.  Geithner and his cohorts wanted to make sure they covered their tracks while using AIG as both a whipping post and a money-laundering device in order to effect the rescue of politically-connected private institutions.

Should we have rescued GS and the banks?  Opinions differ, but even if we needed to do so, that should have been done with enough transparency for everyone to understand where the money went and why.  Playing shell games with the money while demonizing the people who were forced to run the laundry should have been a prescription for excluding Geithner from positions of authority — and so should have the tax evasion revelations.  Instead, the administration of Hope and Change chose obfuscation and deceit.

Naked Capitalism:

He was on the job when these firms levered up and took reckless risks that endangered our financial system. For him to absolve himself of responsibility is a disgrace. And to add insult to injury, we now learn that he urged a systemically important company to withhold evidence of his looting of taxpayers.

Tim Geithner must go.

Get Your Pure Irrational Exuberance Bubble, Uncut

Frederic Mishkin at Financial Times:

There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no.

Are potential asset-price bubbles always dangerous? Asset-price bubbles can be separated into two categories. The first and dangerous category is one I call “a credit boom bubble”, in which exuberant expectations about economic prospects or structural changes in financial markets lead to a credit boom. The resulting increased demand for some assets raises their price and, in turn, encourages further lending against these assets, increasing demand, and hence their prices, even more, creating a positive feedback loop. This feedback loop involves increasing leverage, further easing of credit standards, then even higher leverage, and the cycle continues.

Eventually, the bubble bursts and asset prices collapse, leading to a reversal of the feedback loop. Loans go sour, the deleveraging begins, demand for the assets declines further and prices drop even more. The resulting loan losses and declines in asset prices erode the balance sheets at financial institutions, further diminishing credit and investment across a broad range of assets. The resulting deleveraging depresses business and household spending, which weakens economic activity and increases macroeconomic risk in credit markets. Indeed, this is what the recent crisis has been all about.

The second category of bubble, what I call the “pure irrational exuberance bubble”, is far less dangerous because it does not involve the cycle of leveraging against higher asset values. Without a credit boom, the bursting of the bubble does not cause the financial system to seize up and so does much less damage. For example, the bubble in technology stocks in the late 1990s was not fuelled by a feedback loop between bank lending and rising equity values; indeed, the bursting of the tech-stock bubble was not accompanied by a marked deterioration in bank balance sheets. This is one of the key reasons that the bursting of the bubble was followed by a relatively mild recession. Similarly, the bubble that burst in the stock market in 1987 did not put the financial system under great stress and the economy fared well in its aftermath.

Because the second category of bubble does not present the same dangers to the economy as a credit boom bubble, the case for tightening monetary policy to restrain a pure irrational exuberance bubble is much weaker. Asset-price bubbles of this type are hard to identify: after the fact is easy, but beforehand is not. (If policymakers were that smart, why aren’t they rich?) Tightening monetary policy to restrain a bubble that does not materialise will lead to much weaker economic growth than is warranted. Monetary policymakers, just like doctors, need to take a Hippocratic Oath to “do no harm”.

Simon Johnson at Baseline Scenario:

In other words: keep monetary policy right where it is, and don’t worry about financial regulation.

The second view is much more skeptical that “benign” bubbles stay that way.  Remember that most damaging bubbles – or debt-based over-exuberance, if you prefer – during the past 40 years have involved two elements.

1. Borrowers in emerging markets (Latin America and Eastern Europe in the 1970s; Mexico in the early 1990s; Russia, Ukraine, East Asia, Brazil and many others in the early-mid 1990s; Eastern Europe in the 2000s).
2. Citibank (and its descendants), i.e., a bank that was large and global before any other US institution was so inclined.  Rather than bringing us the wonderful benefits of financial globalization, Citi has almost failed at least twice – and been rewarded for its incompetence with gold-plated bailouts at least four times.

Of course, other banks from other countries have become involved at various moments, but the point is that the lending organizations behind every bubble come from more “developed” financial markets – even when the origin of the capital flows is elsewhere (e.g., recycling oil surpluses in the 1970s).  And the borrowers are always in places where the rules become lax during a boom – in this sense, the US became just like a classic emerging market after 2001 (and arguably earlier).

Phil Izzo at WSJ

Henry Blodget at Clusterstock:

A couple of points:

First, is Mishkin really so certain that this bubble is of the harmless variety?  It seems to us the government is borrowing an awful lot of money to support it.  So how is this bubble not debt-fueled?

Second, is Mishkin really so confident that these two flavors of bubble can be correctly identified while they’re happening?  As we recall, at the peak of the last bubble in 2007, the Fed was not just not telling us what kind of bubble we were having.  It was telling us we weren’t having any kind of bubble.  So it’s hard to imagine that, next time, they’ll know not just that we’re having a bubble, but which kind it is.

Naked Capitalism:

And his argument, that policymakers are incapable of recognizing bubbles is silly. Investors and speculators (crudely speaking) have tougher stomachs than analysts (and presumably policy makers). You need to be willing to take losses and many people are not wired to do that. Being able and wiling to play in markets every day takes certain personal attributes that go beyond analytical ability. Bubbles are extreme events, they are less difficult to recognize than day-to-day investment picks.

Moreover, Mishkin offers a straw man: that the only way to stanch an asset bubble in a particular market is via monetary policy, which is a blunt instrument. Now it is true that the only tool readily available to the Fed now is monetary policy. But the Fed was lobbying to act as macroprudential regulator. It seems very peculiar that, in this post-bubble carnage, it has not done much of anything to generate thought (staff papers, for a starter) on the issue of what tools in addition to monetary policy authorities need to have at hand to be able to attack bubbles in specific, but significant, markets. For starters, you can restrict leverage, put limits on types of trading that might favor purely speculative momentum traders, etc (you’d need to look into particular mechanism peculiar to the relevant markets to devise a surgical intervention).

Mishkin’s arguments are absurd, except they reflect the Fed’s complete unwillingness to take on this task. It is much easier to offer the excuse that you are incapable (and talk yourself into it), than deal with the bigger issue: that pricking an asset bubble is unpopular.

UPDATE: Megan McArdle

Before These Crowded Democratic Primaries

Neil A. Lewis in NYT:

The story of the spectacular rise and fall of John Edwards, with its sordid can’t-look-away dimensions, is moving slowly but deliberately to its conclusion here in North Carolina.

Mr. Edwards, the one-term senator who came close to being elected vice president in 2004 and ran a credible campaign for the Democratic presidential nomination in 2008, remains largely secluded at his 100-acre estate here.

But a federal grand jury in nearby Raleigh is investigating whether any crimes were committed in connection with campaign laws in an effort to conceal his extramarital affair with a woman named Rielle Hunter. At the same time, Mr. Edwards is moving toward an abrupt reversal in his public posture; associates said in interviews that he is considering declaring that he is the father of Ms. Hunter’s 19-month-old daughter, something that he once flatly asserted in a television interview was not possible.

Isaac Chotiner in TNR:

Two other things were worth noting. First:

“At the same time, Mr. Edwards is moving toward an abrupt reversal in his public posture; associates said in interviews that he is considering declaring that he is the father of Ms. Hunter’s 19-month-old daughter, something that he once flatly asserted in a television interview was not possible. Friends and other associates of Mr. Edwards and his wife of 32 years, Elizabeth, say she has resisted the idea of her husband’s claiming paternity. Mrs. Edwards, who is battling cancer, “has yet to be brought around,” said one family friend…”

If true, this does not put Elizabeth Edwards in the best possible light, although the following detail does make you wonder about Ms. Hunter:

“Ms. Hunter gave her daughter the middle name Quinn, and people who have spoken with her said its resemblance to the Latin prefix for five was to proclaim that the baby was Mr. Edwards’s fifth child. (He had four with Mrs. Edwards, the oldest of whom was killed in a car accident).”

Ooookay.

Charles Lemos at My DD:

In the New York Times story, there is this rich snippet:

“According to people familiar with the grand jury investigation, prosecutors are considering a complicated and novel legal issue: whether payments to a candidate’s mistress to ensure her silence (and thus maintain the candidate’s viability) should be considered campaign donations and thus whether they should be reported. When Mr. Edwards was running for president, and even later when he still held out hope of a senior cabinet position in the Obama administration, two of his wealthy patrons, through a once-trusted Edwards aide, quietly provided Ms. Hunter with large financial benefits, including a new BMW and lodging, that were used to keep her out of public view.”And this:

“The notion that Mr. Edwards is the father has been reinforced by the account of Andrew Young, once a close aide to Mr. Edwards, who had signed an affidavit asserting that he was the father of Ms. Hunter’s child.Mr. Young, who has since renounced that statement, has told publishers in a book proposal that Mr. Edwards knew all along that he was the child’s father. He said Mr. Edwards pleaded with him to accept responsibility falsely, saying that would reduce the story to one of a political aide’s infidelity.

In the proposal, which The New York Times examined, Mr. Young asserts that he assisted the affair by setting up private meetings between Mr. Edwards and Ms. Hunter. He wrote that Mr. Edwards once calmed an anxious Ms. Hunter by promising her that after his wife died, he would marry her in a rooftop ceremony in New York with an appearance by the Dave Matthews Band.”

Geez, John no promise of a White House wedding? You’re dead to me John Edwards.

Lindsay Robertson at New York Magazine on the Dave Matthews Band tidbit:

Wow, that is alarmingly specific! And sad. And gross. (And we’re not just talking about the choice of band!) Dave Matthews is probably not pleased to have been dragged into this

Henry Blodget at Business Insider:

The only question now, it seems, is whether Edwards will eventually also admit that he loves Hunter, which is clearly what she has been hanging around for all along.  There’s no other reason to endure the fury Elizabeth Edwards has wrought as the woman scorned.

If Edwards does eventually admit that, Hunter will have played the whole thing perfectly.

UPDATE: Mickey Kaus

Danielle Crittenden at New Majority

UPDATE #2: Ben Smith at Politico

Allah Pundit

Michelle Cottle at TNR

Jason Zengerle at TNR

If “Back To The Future” Was Made Today, Marty McFly Goes Back To 1979

Brink Lindsey has a piece in Reason called Nostalgianomics about liberal pinning for the 50s. Specifically, he’s speaking of Paul Krugman, income inequality and social progress. The last two graphs:

Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethos—an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.

The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won’t lead us anywhere. Reactionary fantasies never do.

Veronique de Rugy at The Corner

Jim Manzi:

Brink goes on to argue that the political and social changes that have allowed growing inequality – and have in turn been reinforced by it – are good things, not bad things. These include greater freedom for women, acceptance of diversity and non-conformism and so on. I broadly agree with this diagnosis, though I think that Krugman paints too rosy a picture of the 1950s and Brink pays too rosy a picture of the current era. The trade-offs involved in policies that allow or encourage growing inequality are not nearly as one-sided as either Brink or Krugman asserts. They are uncomfortable.

But the United States didn’t just wake up in 1980 and decide to make a set of uncomfortable trade-offs through a process of abstract reasoning, or even entirely through organic social developments, we were pushed. What I think is missing from the debate as presented in Brink’s piece is international competition.

Manzi links to Jonah Goldberg, who writes about nostalgia for an even earlier time:

It seems to me that all of the new New Deal talk fails to grasp that the extent to which nostalgia drives our assumptions of “what works.” Even if you give the most charitable reading of the New Deal and the postwar period, the simple fact remains that those times aren’t like these times.

Goldberg is discussing the Niall Ferguson Financial Times article about Keynes and Krugman. Krugman had this blog post on Ferguson in early May. Here’s Paul Krugman‘s column on inflation, published a day before Ferguson. The New York Review of Books symposium with Krugman, Ferguson, Roubini, etc… Andrew Stuttaford excerpts part of the Ferguson piece at The Corner:

Of course, Mr Krugman knew what I meant. “The only thing that might drive up interest rates,” he acknowledged during our debate, “is that people may grow dubious about the financial solvency of governments.” Might? May? The fact is that people – not least the Chinese government – are already distinctly dubious. They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall.

This fight between Ferguson and Krugman has gotten a lot of blog press.

Henry Blodget at Clusterstock

Noam Scheiber at TNR

Sheldon Filger at HuffPo

Gideon Rachman in FT

Cees Bruggemans in iAfrica sums it up:

But as history has shown, this may actually be very rational, demanding upfront that policymakers show it can work and thereby earning the compliance of bondholders rather than merely naively assume such compliance to be blindly forthcoming. Mr Ferguson goes wrong in claiming with the expectations crowd that governments are always wrong. In the present global crisis the Keynesian medication is needed and will work and to decry it merely suggests an inability to distinguish good from bad policy.

[…]So was this clash of titans useful? It most certainly helped in seeing where both gentlemen are going right, but also where they err. This aside of personal pettiness which suggests real big egos can’t have a normal conversation without completely missing the point of each other.

UPDATE: Daniel Gross in Slate