The New York Times iPad App Stinks

November 20, 2011

Duplicative, Disorganized and some other negative word beginning with D.

Oh how I hate their app.  Stories appear in multiple places.  Stories that are days old don’t go away. There’s no “stop”; no resting place.  It’s whatever is on Safari when you open the app.  And that stinks.  I want to read the day’s newspaper in an electronic form.  The Wall Street Journal’s app is perfect.  It gives you both that day’s printed paper in an electronic form and it uploads the website in a separate and distinct place, so that you can check what’s happening now (or the last time you accessed the app).

The reason that this is so important to me is best described by David Carr, the media writer for the Times (and star of the excellent documentary on the Times “Page One“)  in his recent interview with Terri Gross on Fresh Air.  Speaking of his media diet (which resembles mine so close a way as to be somewhat uncomfortable for me because he’s in the media criticism business and I am not), he said:

When I wake up in the morning and the gun goes off, I’m checking Twitter. I’m checking RSS feeds, and I get four newspapers at my house every day. I get the Wall Street Journal, the New York Post, the Star Ledger – because I live in New Jersey – and, of course, the New York Times.

And the reason I do is because the day before this, all this stuff has gone whizzing past me, and I seem to know a lot. But I don’t really know which part of it is important. And I used to think it was so silly that newspapers would – like, I’d go to our page one meeting, and they’d be organizing the hierarchy of the six or seven most important stories in Western civilization. Meanwhile, the Web is above them, pivoting and alighting, and all these stories are morphing and changing. And I thought: Well, how silly is this?

But you know what? I came to want that resting place, where someone yelled stop and decided, look, this is stuff you need to know about going forward. So there’s both real-time news and then newspapers have become a kind of magazine experience for me, where they’re – where it’s a way to look back at what has happened.

The Times app just gives me the “whizzing by” and not the stop, before you even get to my complaints about its (lack of) organization and repetition.

Banking is not a simple business

April 28, 2010

We're trying to handle the truth, but it doesn't conform to our desire for a simple answer

An admittedly overly simple example. I’m sure that my trading desk friends and others that read this with greater knowledge than I on this topic will laugh at my “crayon-like” simplicity.

There’s obviously lots of attention, anger and frustration being directed at Goldman Sachs, who had their senior mortgage staff and CEO testify before Congress yesterday. There was frustration on all sides, since the lawmakers don’t understand the business and the attempts by Goldman to try to explain it struck many as evasive. The example I’ve concocted below does not speak directly to the conflicts Goldman had in selling “shitty” CDO bonds to investors because they had a bigger fish on the other end of the trade who wanted to short the deal. My purpose in providing this elementary example is to show that this is all not as simple as people would like.

Let’s look at a major bank. They have one of the largest originators of loans in their Home Finance unit. This unit reports up through their Retail division. They don’t sell of all of their loans (i.e., they don’t securitize them or sell them all to the GSEs—you can see them on their balance sheet), so they are naturally “long” housing risk. They’re making loans and retaining the risk.

The Investment Banking division includes the loan trading and derivatives trading desks. It’s here that bonds, swaps, foreign exchange, loans and other securities are sold to clients. The Desk buys and sells these instruments based on client demand. The Desk is constantly buying and selling assets—positioning them—so that they have access to the assets that their clients want to buy and sell.  In addition, the Desk is responsible for selling those assets that are underwritten by the Firm. For purposes of our example, let’s say that some of those underwritten assets are bonds backed by home mortgages.

Management, housed in the “Corporate” segment, looks at the risks in the portfolio and has a choice: a) they can either sell the loans outright and forego the interest income on the ones that are going to pay in full, b) they can wait for those that are going to go bad to default and charge them off dollar-for-dollar or c) they can buy insurance on the portion of the portfolio that they think might go bad. This insurance doesn’t cost them 100 cents on the loan dollar (in the same way your car insurance premium is less than the cost of your car). They get many benefits from choice (c): loss protection at a fraction of the cost (it reduces the earnings drag on the firm as a whole with respect to charge-offs; it’s providing the funds used for reserves instead of having them come out of other earnings) and increases the stability of earnings to name just two. This process protects their shareholders.

What form does this insurance take? It can come from shorting the ABX index. This index is in layman’s terms the mortgage-backed securities equivalent of the S&P 500. They sell the ABX to someone who, for their own portfolio reasons, wants exposure to the US housing market but can’t buy individual loans and wants the diversity of an index as opposed to a single MBS issue. Foreign banks, insurance companies, pension funds, etc. might represent some typical buyers.

Home Finance is long housing. One part of the Desk is selling mortgage-backed bonds to clients, while another part is executing short trades on behalf of the Corporate segment. But if you look solely at the Desk as the Senate Permanent Subcommittee on Investigations did yesterday, you see a firm that is “selling bonds to clients while betting against the very same bonds”.

My question is: What should they do? Only be long housing and selling bonds? If that’s the case, they will reach the point where they don’t want any more housing risk and will stop making mortgage loans. This will raise the “why can’t I get a mortgage?” complaint from consumers. We don’t want that.  If they don’t manage their portfolioexposure in some way–by shorting or in the vernacular, “flattening the book”–they’re exposing their shareholders (and it need be said, the FDIC and ultimately the taxpayers) to more risk than they want to take. This increased risk is almost the opposite of the moral hazard.

What Goldman and the other Wall Street firms do is much more intricate and complicated than this example and much more complicated that they can explain when confronted with loaded questions, but looking only at one part of the picture is both unfair and disingenuous. But then again, no one said that the purpose of these investigations was to get to what’s fair or ingenuous. None of this excuses what the SEC alleges Goldman did wrong in the Abacus trades. That part of the story—the “who should have told whom about who else was involved in the deal” stuff, will all be aired in court. I’m not capable of judging whether Goldman violated the law or ethical treatment of their multiple clients.

The point of all this is that these firms are all engaged in multiple activities across their different platforms, and looking at only one part of a firm’s business can lead to drawing the wrong conclusions and bad legislation to try to “fix” the problem.  It is likely that any legislation that comes out of this will likely activate my favorite law, the Law of Unintended Consequences.

To those who say that there was no incremental economic activity associated with the synthetic trades at the heart of the Goldman deals, I ask, “How is that different from the secondary trading on the stock exchange?” The companies that have issued the stock already have the money, it’s just a transfer of wealth from one party to another; one that thinks that the value will go down and one that thinks that the value will go up. The firms that make markets in equities—that trade them off of their own book to facilitate client transactions aren’t telling their client that “someone else thinks the value of the stock you’re buying is going to go down—that’s why they’re selling it while you buy it.” No one seems to complain about that.

I fear that people take advantage of the fact that these activities happen beyond their normal sight. They’d rather not consider on a regular basis with the messy details of what makes markets work, of who gets and who is denied credit and for what reason. They reap the benefits of a vibrant capital market (and yes, on balance we’ve reaped much greater benefit from these markets and these activities than the events of the last two years have cost us) but once these practices are out in the open people are shocked (shocked!) and dismayed that such things happen.* The Wall Street Journal on Monday provided an email of unknown authorship that mashed up Colonel Jessup’s famous “You want me on that wall,” testimony from “A Few Good Men” in with the concept of the allocation of capital that the banking industry provides. I won’t dwell on it here, because it’s an overdrawn example (pardon the pun). But this letter to the New York Times printed today is worth reading and considering. In essence, the author says that had there been more John Paulsons out there, more people who wanted to “sell” and not “buy” exposure to the US housing market, the end would have come sooner and the damage less dramatic.

I understand that people want a scapegoat. They want a villain. I hold no quarter for Goldman Sachs. But none of this is as simple to explain as people might like and all of it is critical to the future success of our economy. Getting this wrong will have long-lasting effects and we may pay a price for it in terms of economic growth for years to come. It may be a price worth paying, but I think that we’d be better off knowing that price ahead of time.

*  When you hear an entrepreneur lament that he can’t get a loan to start his business, ask them how much equity he’s putting into the venture versus how much he’s trying to borrow. Banks have never been good at venture capital—they’re good at lending to businesses with track records of performance. People that are trying to borrow money to start businesses are looking in the wrong place. They want to use the bank because the bank is cheaper than going to a venture capitalist who will likely demand a higher coupon and an equity interest in the deal, which the entrepreneur is loath to surrender. The fact that during the bubble banks made these loans is as much a testimony to the lack of lending standards that existed as all those poorly conceived mortgages. It’s not that “banks aren’t lending”. It’s that banks are trying to return to the underwriting standards that kept them safe  for so long without a giant spasm of failures. We shouldn’t want banks to do the same deals they did over 3 of the last 4 years. We should want something better. There’s money out there to be had, but it’s more expensive than it used to be.

    What I read

    March 28, 2010

    Probably Enough to Keep Me Busy

    My name is Mark and I am an addict.  My drug of choice is information, particularly on current events.

    I started really reading in junior high, but it got out of hand in high school.  At first it was two newspapers a day (Chicago Tribune and the Arlington Herald).  Sports first, then the other stuff.  My reading an article about a rape trial got me “the talk” from my dad. I was in Student Congress in high school and there wasn’t a current topic that was off-limits, so preparing meant covering a wide landscape.  The guy behind the periodical desk at the library came to dislike me.  That experience introduced me to the New York Times, Washington Post and Wall Street Journal, as well as a broader range of general and not so general interest magazines.  Foreign Policy, anyone?  It was a gateway drug.

    I went into remission in college, then resumed consuming thereafter.  It’s now really out of hand with both internet’s accessibility and my not having a job.  But even when I worked, I still always had about 40 pages of articles I’d reformatted into two-column, 10-point font to carry with me.  Walking to a meeting, waiting for a lunch partner, lunching by myself, on the train, and in other places appropriate or not, my appetite for news could be described as insatiable.  In the last couple years, I’ve fallen in love with podcasting, so now I’ve got news in through my ears and eyes, often at the same time.  If you see me with my headphones, chances are good that I’m tuned into Fresh Air or something similar, rather than Green Day.

    I don’t watch much TV; mostly sports and a few entertainment shows (Modern Family tops the list, Wednesdays at 9/8CT).  I only occasionally watch cable news, and that’s only because I like the way certain people write their material, not because it adds much to my knowledge or understanding of a topic.  Cable TV does all of us a disservice by conflating the ideas of “governing” and “politics” and treating both in the same way CNBC treats the stock market or ESPN treats the baseball season.  It’s not a game.  Policy-making, like history, happens over a long arc of time and does not change eight times within 24 hours. I couldn’t help but notice how the so-called conventional wisdom on President Obama turned 180 degrees in the moments following signing the health care bill (and publication of David Frum’s “Waterloo” analysis). One moment, he’s a political blunderer, the next a genius.  It was never either one and there wasn’t a switch magically flipped on Sunday.  While there are addition points made in this this NY Review of Books piece, it encapsulates my feelings on the topic pretty well.

    I used to have a business relationship with CNN and conversations with their executives taught me much about how they think and their need to “feed the monster”.  Essentially, their argument was:  We’re on for 24 hours and have to have something to talk about, so we take small things, small differences, highlight them and if we’re lucky, we’ll get a run of a couple days out of a story.  If that happens, it’s that many fewer other little stories that we’ll have to report. It was akin to taking crap and throwing it against the wall to see what would stick, then talking about it until it fell off the wall.  It works great at first (e.g., the first Gulf War), but with the proliferation of channels, the hosts of these shows have to continually come up with unique things to be outraged about, lest they lose their gigs (think Beck and Olbermann; Hannity and Ed).  If there’s nothing to be outraged about, what’s the point of having them on the air?  So outraged they are.  And we lose the concept of rational discourse in the process.

    But I digress.

    So, I read.  Don’t tell my business colleagues, but reading about business bores me.

    I occasionally get asked what I read.  Unlike someone who came to national prominence in the last couple years and was unprepared for that question, I have an answer.  It’s a long one.  I’m exhausted looking at it.  You’ll note that it doesn’t include Time, Newsweek or any of the other “general interest” magazines.  My sense has been that if they’re only going to publish weekly, their analysis had better be excellent because it comes so late; I find their websites generally uninteresting, too (too much celebrity coverage).  The last time I checked, I didn’t think it warranted the effort.

    It’s a habit I can’t kick.  I read the occasional book, but while doing that, I’m thinking of the other current things I could be reading about, so it sort of sucks the pleasure out of it.  The only exception is when I get my hands on a good history book, since I can put myself in the historical context and read it as if it was a current event.  It’s more confusing to explain than to do.

    So here’s the list.

    Physical media:

    Online – consistently (I pay for access to the WSJ.  I would pay for content at other providers, too.  The notion that this stuff all has to be free is flawed as far as I’m concerned):

    Online – occasional


    • PTI
    • C-SPAN After Words (from Book TV)
    • Fresh Air
    • NPR’s It’s All Politics
    • NPR’s Planet Money
    • PBS NewsHour
    • Slate’s Culture Gabfest
    • Slate’s Hang Up and Listen
    • Slate’s Political Gabfest
    • Countdown
    • This American Life
    • On The Media
    • Today in the Past

    No Politico, Talking Points Memo or Daily Beast.

    If I’m missing something, let me know.  There’s always room on the browser and in the stack of papers for another view.

    More write-downs ahead for banks

    March 4, 2010

    Be afraid. Be very afraid.

    I know this is getting tedious but, I can’t help it.

    Today’s Wall Street Journal included a story about how home mortgage refinancing volumes aren’t as high as expected, even though interest rates are low and being kept low by the Federal Reserve.  The premise of the story is:  there’s money being left on the table by borrowers who aren’t refinancing.

    But buried in the article is a reason to continue to be very concerned about bank balance sheets and the write-offs yet to come.

    John Albright, a retired Navy officer in Manassas, Va., hasn’t been able to refinance because the value of his home has plunged. He figures its market value is now around $275,000, but he and his wife still owe more than $500,000 on their mortgage.

    Their refinance application was turned down last year because they lacked equity in the home. He says his lender told him he could refinance only if he could come up with about $200,000 to pay down his mortgage. So they are stuck with an interest rate of about 6.5% at a time when his wife’s income has declined. “We’re going from paycheck to paycheck, but what can you do?” Mr. Albright says.

    Here we have a couple who appears to be still paying on their mortgage, but has no hope of refinancing into a lower rate because the amount they owe exceeds the market value of their home by a huge amount.  The Albrights are stuck in this house until and unless one of two things happen:  either home prices skyrocket or they convince their bank to reduce the principal balance of the mortgages to something closer to the current market price, and they might only do this in a “short sale” if  the Albrights want to move.

    This is obviously bad news for the Albrights, but it’s equally bad for their lender.  This mortgage is likely still being shown on the banks books as “current” since the Albrights appear based on the article to be making payments.  But if you were to mark this loan today, you’d have to say that there’s an embedded loss for the lender of $225,000–the difference between the current mortgage and the market value.  I’m feel safe in saying that whoever holds this paper hasn’t recognized this loss yet simply because the loan is still paying.

    All of which is a long way of saying that the problems in residential real estate are starting to feel “perpetual” (even though they won’t be, it just feels like it), and there are more losses buried on banks’ balance sheets (as if we need to be reminded of that!).

    The looming tax increase

    March 1, 2010

    The closer you look, the smaller it gets

    This has nothing to do with Democrats or Republicans or who is president.

    Today’s Wall Street Journal shows that the effect of the financial crisis on states and municipalities (and taxpayers) is only starting to be felt. As state pension funds cut investment return forecasts (to reduce the need to take excess portfolio risks), the difference must be made up by taxpayers.

    At Calpers, about 75% of payouts come from the pension fund’s investments, with the remaining 25% tied to contributions from California governments and employees. According to Pew, a hypothetical $100 billion pension fund that achieved a 7.75% return rate for 10 years would have about $211 billion. With a 6% rate, the same fund would grow to $179 billion—a difference of $32 billion.

    That $32 billion will come on the backs of California taxpayers.

    Note to IL residents: If Calpers is cutting from 7.75% to as low as 6%, consider that IL is still at 8.6% on an $8.7 billion asset pool.  If IL cut to 6%, that’s about a $4bn addition to an existing $45bn unfunded pension liability gap.

    We’ve made promises to workers that we can’t afford to keep.  The Pew Center on the States reports that the total gap is about $1 trillion ($1,000,000,000,000).  Those promises were made to people that are critical to our survival,both literally and figuratively (e.g., firemen, policemen, teachers), who are relatively low on the pay scale and who aren’t eligible for social security.  It’s not as simple as cutting the payouts to the recipients.  The whole social contract needs to be rethought.

    As being known as something of a cynic, I was disappointed in myself that I was continue to be surprised and disappointed by the lack of vision and the unwillingness of our elected officials to tackle the tough problems we face, preferring instead to focus on those less difficult issues that will offend no one and help keep them in office.  In the meantime, the problems created from when we were seemingly awash in money and nothing bad would ever happen to us, continue to get worse and the hole gets deeper.

    The first rule of being in a hole is “stop digging”.  As a nation, our elected officials always seem to have shovels in their hands. (And that’s not a crack at the very necessary stimulus plan.)

    Mortgage Mess

    December 16, 2009

    Sadly, the mortgage mess is going to be with us for a long time.  The big thing that I think is likely to prevent a resolution any time soon is complicated, but worth thinking about.  It’s really much more complicated than I depict here, too, but for simplicity I’ve stripped it down to one issue and the essentials at that.

    As you think about why more mortgages aren’t being renegotiated so that foreclosures can be avoided, consider this:

    The holder of the first mortgage is quite often different from the holder of the second mortgage or HELOC.  If both mortgages were written at the same time, the chances are that the first was sold off and likely securitized, while the second was either held by the lender or sold in a separate securitization.  That second lien loan is, in many cases, worthless because of declines in market values of homes beyond the point where the homeowner has any equity (as discussed in this WSJ article).

    For example, if the home was worth $250,000 and the owner got an 90% first mortgage and a 10% second at the outset ($225k and $25k, respectively), but that home is now worth only $190k (a drop of 24%–not unheard of these days to be sure), the second lien holder is S.O.L.

    The reason that this is important and the reason that the crisis is going to be around for a long time is that those separate holders of the mortgages have different motivations and different exposures to be managed.  If the holder of the second lien is the originating bank and that bank acts as the servicer for both loans, there is a potential incentive for that servicer to not renegotiate the first mortgage to avoid having to realize the worthlessness of the second.  Setting aside the fact that the servicer can potentially make more money keeping a struggling homeowner barely alive than they can with a fully renegotiated loan, the holder of the second lien has no incentive to realize the true value of its position, so they don’t.

    The government is pressing lenders to restructure mortgages to avoid foreclosures–but those are first liens that they’re thinking about.  If the first mortgage is restructured to the point that principal is forgiven and the balance reduced, the servicer/second lienholder must recognize that its loan is wiped out and write it down to zero if it’s still unsecuritized.  (If the second is securitized, the situation is potentially much more complicated.)  It’s not at all clear that this process of clearing bank balance sheets of “toxic waste” has occurred, despite the massive losses recognized during 2008.

    To say nothing of the commercial real estate exposures that are lingering in a semi-dead state to be dealt with at some point in the future, hopefully after banks can earn enough money to replace the capital they’re about to deplete with big CRE write-downs.

    More to come on this topic.

    Typos in the news

    May 22, 2009
    The extra "i"s have it!

    The extra "i"s have it!

    Typographical errors are in the news lately. I came across two typo stories in the last 48 hours; one charming, one an abject lesson.

    The first from yesterday’s WSJ discusses errors in the engraving on Lord Stanley’s Cup.  Goalie Jacques Plante has his name spelled three different ways on the Cup.  Team names are wrong.  An Assistant Manger is identified as an “ass man”.  In general, guys are so happy and proud to have won the Stanley Cup that they’ll take it.  In all, it’s charming.

    Then there’s the story of Hayden Panettiere.  Today’s Huffington Post reports that Ms. Panettiere (a person unknown to me until this morning) has a typo problem of her own.  Her tattooed philosophy  “to live without regrets” is being sorely tested by the fact that her desire to have this message written in Italian was not matched by either her ability to tell the tattoo “artist” how to spell it or the “artist’s” ability to read.  The result is a life-long, permanent “oops” moment.  The story does not report whether she regrets the incident.  I wonder if she’s crossed Italy off of her vacation list.

    The desire or attractiveness of tattooing has always escaped me, so perhaps I’m less sympathetic to Ms. Panettiere’s fate than I should be.  Even at my most intoxicated, the thought of creating a permanent record of the event never occurred to me.  Running the risk of having a permanent spelling error is just reason #245 for me to avoid the “parlor”.

    Topical Yogi Berra story (probably apocryphal, of course).  Yogi goes two-for-three, but the next day’s newspaper showed Berra only going one-for-three.  Yogi confronted the beat reporter for the paper about it.  The reporter apologized and said that it must have been a typographical error.   Yogi says, “Typographical error, my eye.  It was a clean single.”

    UPDATE:  More tattoo typos in the news courtesy of the Huffington Post

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