But the problem is that spending trillions of dollars is actually extremely difficult, and it’s even harder if you try to front-load it. Government, by its nature, moves slowly, and I get the impression that the “easy” spending — and then some — was all included in the initial stimulus bill. The “shovel-ready projects” have already been funded, and any extra stimulus might well take years to kick in.

In an efficient market, a credible government promise to invest hundreds of billions of dollars in mass transit and nuclear power and smart electrical grids and so on and so forth would have an immediate stimulative effect: people would start spending now, in anticipation of all those government dollars which are going to arrive in a few years’ time. But we’re in a liquidity crunch, and we’re not in an efficient market, and unfortunately government spending only seems to cause any stimulus as and when the checks are written, if then. (Insofar as they go to companies who are running down their inventories, there’s no stimulus at all.)

I don’t think there’s any doubt that there are diminishing marginal returns to fiscal stimulus plans — which brings me to Paul Krugman’s take on the subject, where he asks how an examination of the marginal costs and benefits of deficit spending could possibly come to the conclusion that stimulus of $800 billion was exactly what was needed.

Let me try to hazard an answer to that. Start with the guiding assumption, as stated by Larry Summers when the stimulus bill was going through Congress, that the risks of spending too much paled in comparison with the risks of spending too little. And because the effects of government spending on GDP and unemployment are hard to predict with any accuracy, there was a strong case that a monster $800 billion stimulus bill was in many ways the prudent course of action.

Since then, however, the economy has done much worse than anybody thought it would. Which is one way of saying that the stimulus has not done as well as people thought it would. This is a useful datapoint — and one way of looking at it is to conclude that the stimulus was so big that the last few hundred billion dollars have had virtually no positive effect at all. And that any extra stimulus would similarly achieve very little.

If there is to be a second round of stimulus, then, I think it should certainly go to areas largely untouched by the first round. I like arts spending; DeLong wants an “aid-to-states-that-maintain-effort package”. But unless and until we can demonstrate that the marginal benefit of extra stimulus spending hasn’t already diminished to something negligible, it does seem fiscally reckless to throw good money after wasted funds.

Put the attractiveness of a food-TV host on a scale from 1 to 10, says Chris, and put the repulsiveness of the food that host eats on another 1-to-10 scale. Then the product of the two numbers will always equal 10 — Gianna Giada De Laurentiis, for instance, is a 10 on the attractiveness scale, and eats only beautiful food.

Ying adds, in a footnote, that TV executives could actually use this formula normatively:

If our hypothetical TV host is a 2.1 in attractiveness, and we’ve got him going around the world eating macaroons and tea sandwiches, we’ve got to bring the repulsive level of his food to 4.76 before that show gets off the ground.

Ying never quite answers his own implied question, though: why is it that repulsive food is good for ratings if the host is not attractive, but bad for ratings if the host is attractive?

But the weird thing is that it doesn’t:

Under the Rangel plan, married couples making $350,000 would also be subject to a 1% surtax to cover the health plan. The levy would rise to 2% for those making above $500,000 and 3% for those with incomes of $1 million or more.

This is an income tax, pure and simple, not a wealth tax. Personally I think a modest wealth tax, in conjunction with an income tax, makes a certain amount of sense. Why tax income, which people work hard for, but not unearned wealth? But in any case, this isn’t a wealth tax, and I don’t understand why it’s being characterized as one.

Update: Tom Lindmark says he’s “not quite sure what constitutes unearned wealth”, saying that “the only way to accumulate wealth is to earn it via hard work or diligent investing”. If that’s true, then really a wealth tax is a (delayed) income tax, and so the choice between an income tax and a wealth tax basically just comes down to choosing whether you tax income as it’s earned or only after it’s been accumulated and invested.

On the other hand, I think there’s lots of unearned wealth in this world, most but not all of it in the form of inherited funds. (There’s also all those lottery winners.) To a large degree anybody who became wealthy by selling their home for much more they bought it for can’t really be considered to have been diligently investing, and can be considered one of the few beneficiaries of the housing bubble. So that wealth, too, might well be caught by a wealth tax but never by an income tax.

Lithwick on Palin: “when the dust settles, the lesson may be that she was simply a woman who made no sense”

You can dust it, and you can wipe it with a damp cloth” - Thomas Kinkade, selling his art on ShopNBC.

Great graphic: How consumers spend their paychecks

Julian Sanchez demolishes new-economy speak from Umair Haque

the Obama administration is developing an initiative to take money from the $700 billion program for the banking system and make it available to millions of small businesses.

This is pretty desperate stuff: a Stimulus II in all but name, using TARP funds because there’s no way the administration has any intention of trying to push an actual second stimulus bill through Congress.

The reaction to this proposal should be exactly the same as the reaction would be to a stimulus bill proposing the same thing — and while I think that SBA loans are often good things, I also think there are other, more effective ways to stimulate the economy and increase employment over the short term. And in the long term small businesses have a way of looking after themselves; government is most effective in building large-scale national infrastructure. So I’m not a fan of this idea.

Why blog?

There are basically three reasons to blog; two of them are good and one is bad.

Lots of companies are hiring bloggers these days, ranging from huge media concerns like Reuters to small start-ups. Pay can be good, and there’s no real difference any more between what a full-time blogger gets paid and what a full-time journalist gets paid. The work can be hard, and the blog can end up eating your life, but at the same time there can be an enormous sense of freedom when you’re given a blog of your own. Last summer, for instance, I blogged the financial meltdown from Berlin — Portfolio didn’t really care where I was based, so long as I was putting out a good blog.

A blog is also a spectacularly good way to get noticed. If you do aspire to being hired as a full-time blogger, then having a blog of your own is pretty much a prerequisite these days — people want to hire bloggers, not hire journalists and then cross their fingers and hope that it turns out those journalists can blog. All to often, in such cases, they can’t.

A blog is also a media outlet in and of itself, and you can put Google ads on it, or try to sign up for some kind of ad network which will sell your ads for you. If you’re really ambitious, you can even try to sell ads yourself.

But this really isn’t a good idea. The overwhelming majority of personal blogs will never make more than pocket money in ad revenue, and if you start blogging with the idea that you’ll be able to make money at it directly, there’s a very good chance you’ll give up in disgust quite quickly.

Who should blog?

The short and easy answer, of course, is “everybody”. But blogging isn’t easy, and not everyone is good at it. If you find writing hard, if you don’t feel any particular need to share your opinions with strangers, if you value your privacy — then maybe blogging isn’t for you.

And there are some good reasons not to blog. It takes up a lot of time, which means that there are significant opportunity costs associated with blogging. If you read a lot of blogs and news outlets anyway, then the marginal extra time commitment can come down, but it’s still substantial. It also puts you out there; it’s not for the thin-skinned. People will be very rude about you, in public. If you don’t want that, don’t blog. And it can, in extremis, even get you fired — bloggers tend not to be Organization People, and they tend to say what they think quite forcefully, and they don’t have much in the way of job security. (Of course, having a good blog can get you hired, too: there are two sides to that coin, and right now the market in good bloggers is pretty hot, and the number of bloggers making six-figure incomes has never been higher.)

Where to blog?

This is the easy bit. Just sign up for Blogger or Wordpress or Typepad or Tumblr or Posterous or any number of other free blogging services, and jump right in. You can set up a blog on Salon.com if that appeals, or any number of other places. If you’re already a regular commenter on a group blog, maybe they’ll accept you as a contributor. Alternatively, if you have a reasonably established brand already, get yourself signed up with HuffPo or True/Slant or, again, any number of websites which are designed to get journalists’ content up online in an unfiltered manner.

In the finance and economics space, it’s easy to sign up with Seeking Alpha, either in conjunction with your own personal blog or else as your own blog. Finding somewhere to post your stuff is the easy bit. The fact is that it’s your content which will drive whether people come to read you or not, it’s not where you blog.

When to blog?

As always, there’s a trade-off between quantity and quality. Should you write more, with lower quality, or less, with higher quality? Fortunately, the blogosphere has been around for long enough that we have a simple empirical answer to this question: given the choice, go for quantity over quality. You might not like it — I certainly don’t — but I defy you to name a really good blogger who doesn’t blog frequently.

Often bloggers are the worst judges of their own work; I can give you hundreds of personal examples of blog entries I thought were really good which disappeared all but unnoticed, and of blog entries I thought were tossed-off throwaways which got enormous traction and distribution. Mostly, blogging is a lottery on the individual-blog-entry level — and if you want to win the lottery, your best chance of doing so is to maximize the number of lottery tickets you buy.

Personally, I’m not very happy about this fact. But it is a fact. And although I might gravitate towards those blogs in my RSS reader which have only one or two unread entries, I know that empirically speaking success in the blogging world is pretty much directly proportional to frequency of output. I thought RSS would change things. It didn’t. Ah well. And don’t worry about time of day, either: people read blogs at the craziest times, so once it’s written just put it up.

What to blog?

Journalists can be quite precious and jealous about the stuff that they write. When I set up my first blog in 2000, I was careful not to put any financial stuff on there: the blog was the stuff I wrote for free, while financial journalism was the stuff I got paid for. Why would any newspaper or magazine want to publish my work if it was freely available on the internet?

In hindsight, this was completely the wrong way around. What I should have been doing was leveraging and advertising my competitive strengths: publishing as much as I could, as often as I could, on the stuff that I knew the most about. And of course blogging is a great way of learning about most any subject, too — blogging finance makes you a better financial journalist, blogging climate change makes you a better science journalist, and so on.

How to blog?

Blogs are a conversation. Remember that. They’re not a sermon, they’re not a news article, they’re much closer to a discussion in the pub, or sometimes a graduate seminar. They can be funny, or serious, or angry; they can be two words or 20,000 words long; they can be pretty much whatever you want them to be, including heavily reported. But they’re distinguished by having voice, which is one necessary part of a conversation.

Another necessary quality of any decent conversationalist is that he or she be a good listener. The same goes for blogging — to a very large extent, blogging isn’t writing, it’s reading. I have hundreds of blogs in my RSS reader, I use Google Alerts and other tools to let me know what other people are saying about me, I spend a lot of time reading my comments, and of course I read lots of other blogs avidly. Blogging, certainly the way I do it, is to a large degree about synthesizing information — connecting this news article here to that blog entry there, putting things into context, and making connections. And so although I produce a lot of content, I consume orders of magnitude more.

I like to say that the main difference between bloggers and professional journalists is that while journalists tend to think of a news article as the end of the journalistic process, bloggers tend to think of a blog entry as the beginning of a conversation. And that’s why it’s important to be generous: journalists hate to credit others, while bloggers love to. On Thursday there was an article in the FT about blogging which encapsulated the difference: its opening line talked about some unspecified “recent column in another newspaper”. Naturally, there was no link. With a blog, you have to link to the people you’re responding to, to the people you’re quoting, to the sources you’re citing. A journalist loves getting an exclusive interview; a blogger is exasperated by such things, because you can’t link to them. When PR people offer me interviews, my first response is always to simply say that the would-be interviewee should blog his or her thoughts, and then I can link to them. Better for both of us.

And another part of being generous: leave comments on your own blog, and on other people’s blogs. Doing so is in no way below you.

Then there’s the really tough one for journalists: be wrong. Here’s another slogan for you: if you’re never wrong, you’re never interesting. Journalists-turned-bloggers tend to be overcautious to a fault, which makes for dry, overhedged prose. If you make a mistake, your commenters and other bloggers will tell you soon enough, and you can correct that mistake very publicly, using strikethrough code or an update. You’re transparent about what you had said, and you’re transparent about what you should have said, and you get a lot of respect for that. With journalism, what you write is immediately part of the public record, and it’s very hard to go back and change it once it’s published. With blogging, you can and indeed you should. (But not in a non-transparent way.)

I should mention at this point another one of my slogans: “the object of quality in a blog is not the individual blog entry, it’s the blog itself”. Every so often some meta-media organization decides that it needs to get with the online world and make bloggers eligible for its prizes. There’s invariably an application form of some description, which asks you to present your best blog entries; those blog entries will then be read by the judges to determine which blog is the best.

This is of course ridiculous. There are great bloggers who do little more than link to other people: no one blog entry is worth much at all, but the aggregation and editing function is invaluable. What’s more, pointing to just one blog entry by its nature turns blogging into journalism: it strips out all the conversation. The best blogs are the ones which spark the best conversations — which means that to judge a blog you should read not only the blog itself (as opposed to blog entries picked out ex post) but also the comments on that blog, and other people’s blog entries that link to the blog in question. Which isn’t really humanly possible, I’ll admit. But it’s important to at least try.

What shouldn’t you do?

The first is something I see a lot when journalists first start blogging: they write beautiful self-contained journalistic pieces, with ledes and nut grafs and few if any links. Go have a look at your favorite blogs, and see if you can find any pieces like that. You can’t. Blogs are much less formal, much less polished, much more conversational. So ignore what they taught you at J-school, and be yourself.

Don’t worry about hitting the “publish” button. Not everything you write will be good; some of it will be downright bad. And you’ll get called out for that, and it won’t feel very nice. But publish anyway. If you were having a conversation in the pub, you’d say silly things sometimes. Just move on. More interestingly, you’ll find that a lot of what you thought was bad turned out, in retrospect, to be very good. And vice-versa.

After you’ve been doing this for a while, you’ll grow a nice thick skin, but at first you’ll probably get riled up by some of your commenters, both on your blog and on other blogs linking to you. Try to be zen. Alternatively, you might get riled up by the *absence* of commenters, or people linking to you, and ask yourself if you’re just shouting into a void. Again, be zen. And do try to avoid obsessing over pageviews. They’re not a very good metric of how widely your stuff is disseminated, and you’re not doing this for CPMs. So, again, be zen. Because otherwise you just start publishing listicles and other linkbait, and your blog becomes crap.

Don’t expect to be an overnight success. It takes a while to get momentum — more than a year, in most cases — and if you’re enjoying yourself that shouldn’t matter.

Don’t censor yourself. You’re doing this because you want people to read your work. So make that as easy for them as possible. If they want you to email it to them, email it to them. If they want to read it on Seeking Alpha or Huffington Post, then post it there. If they want to read it in their RSS reader, then make sure you publish a full RSS feed. And if someone else flatters you by copying your stuff, be happy, not angry. You’re not doing this for the pageviews, you’re doing this to be read.

Most importantly, just have fun. If you don’t enjoy writing the blog, no one’s going to enjoy reading it. So jump in and make merry!

Laura Conaway asks why pedestrians walk in bike lanes, and reprints the photo above, which might well have been taken on Broadway, just south of 42nd Street. I know that stretch well — I bike down it on my way from work — and in general I stick to the road-for-cars, rather than risking life and limb on the bike-path-for-bikes.

This is a badly designed bike path, because of the location of the pedestrian zone you can see on the left hand side of the photo. There’s the sidewalk, and then the green bike path, and then the brown pedestrian zone, and then the black car lanes. When Broadway is bustling with foot traffic, it’s only natural for pedestrians to move back and forth between their two zones, especially during times when bike traffic is light.

But more generally I think it’s just that pedestrians were taught the rules of walking on streets by recourse to fear: look both ways, lest you get run over by a car. The natural corollary to such thinking is that if there’s no danger of getting run over by a car, there’s no need to look out for traffic. (If and when pedestrians do see me biking down the lane, they’re generally good enough to stay out of my way; the much bigger problem is the oblivious pedestrians, often listening to their iPods, who have no idea I’m there, and never stop to look.)

There’s also the natural impatience and pushiness of New Yorkers, who have a natural tendency to use bike lanes as a staging point in their rush to cross the street. No one in New York waits patiently on the sidewalk for the lights to change; instead, they inch forward on the road as far as they can without walking straight into the path of cars. They don’t worry about getting into the path of bikes, though, and if they see a bike coming, they generally stay put, since they couldn’t possibly step backwards. And if they’re crossing mid-block, which they often do, they generally take one step out from between parked cars before looking for traffic, since they know any car driving down the road won’t drive that close to the parked cars. (Bikes, again, they just don’t think about.)

Bicyclists, I have to say, are just as bad, if not worse: at intersections they never stop where they’re meant to, and instead stop either (a) right in the middle of the pedestrian crosswalk, or (b) right in the middle of the cross-street’s bike lane. (And don’t even get me started on the “bike salmon” who ride the wrong way down the block and seem to think that all bike lanes are two-way streets.) Although bikers get very mad at motorists, the fact is that car drivers are much more law-abiding than either bicyclists or pedestrians, and tend not to feel that the rules don’t apply to them. I’ve even noticed an increasing number of car drivers who seem to know the difference between a bike lane and a left-turn lane.

In northern Europe, everybody tends to be much better behaved. I think that’s learned: as the number of cyclists in a city rises, two things happen. Firstly drivers and pedestrians become more conscious of the fact that a cyclist is likely to be on the road. And secondly there’s an increasing number of what you might call non-brave cyclists, who don’t consider biking to be some kind of urban warfare and who are more likely, at the margin, to simply follow the rules of the road which they know so well from driving cars. Eventually their good behavior rubs off onto the more reckless.

Ultimately I think it all comes down to a combination of visibility and civility. As bikes and bikers become more visible, everybody else will be more conscious of them. And as they feel more noticed and less victimized, they will start to behave more responsibly to other road users, on foot and in cars. Who will then start to reciprocate even more. The problem is this takes years; it doesn’t happen overnight. And in the meantime there will be nasty bike-pedestrian collisions, some of them unspeakably tragic. My friend Josh Phillips died in 2006 after hitting a pedestrian on his bike. The pedestrian wasn’t malicious, just oblivious. But that’s no solace to Josh’s family and friends.

Update: Walking back from lunch, I noticed this scene on 41st and Broadway. You can shout as loud as you like, this obstacle won’t get out of the way. And as a result you can see two bicyclists having to detour into the pedestrian zone.

We just released our rental report for the second quarter and the results sounded vaguely familiar to the sales trends. Rental inventory is rising at a 28.8% clip. There was a 17.5% year over year decline in rental price per square foot and a 58.3% decline in the number of new rentals.

Part of the problem is that apartments which just can’t be sold are being rented out instead. (Think Tim Geithner.) As a result, rental inventory is rising fast, which is depressing rental prices.

But what explains the plunge in the number of rentals? It seems that in a down market, people are simply much less likely to move house than they are in an up market — and that goes for renters as well as buyers. Partly, I’m sure, the reason is the depressed job market: new jobs are a big reason for people to move. But can that explain a 60% decline in rentals even as there’s a sharp drop in sales as well?

James B. Lee of JPMorgan Chase & Company, who has represented clients in some of the biggest deals in history, said of Mr. Murdoch, “nobody else I have ever banked could have pulled it off.”

Rupert Murdoch on Jimmy Lee:

News Corp.’s Murdoch says he consults regularly with Lee, and gives him a great deal of credit for helping him buy Dow Jones in 2007 — a deal many believed was impossible, because the Bancroft family that had owned the company for 105 years was thought to be totally opposed to the idea.

“He knew it was something I’d given a thought but he actually made the contacts and got things together,” Murdoch told TheStreet.com. “Without him it wouldn’t have happened or would have happened much later.”

My prediction? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t “recover” because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

This is related to Mohamed El-Erian’s “new normal” idea — while previous recessions were part of economic cycles within a certain economy, what we’re going through right now is a painful disruption from that economy to something else. I fear that the flat or declining median wages, however, might well survive the transition — at least so long as unemployment continues to remain as high as it is now. Which is one reason not to worry overmuch about inflation: if consumer spending accounts for 70% of the economy, and consumers don’t have any money, it’s really hard for prices to rise very quickly.

* Rates as low as 7.50% APR*
* 12-month term
* Borrow up to $2,500
* 100% financing of bike plus accessories

One of the best things about bikes is that they’re cheap. Yes, it’s easy to spend $2,500 on a bike if you put your mind to it — or much more even than that. But the only people buying $2,500 bikes should be people who can easily afford to pay cash for them: no one should be taking out a loan for that kind of luxury.

With any luck Eric Matthies will weigh in on this question on his blog — he knows much more about biking than I do. But my gut feeling is that the price-quality correlation when it comes to bicycles is pretty low, and that much of the time it’s actually negative. (What you gain in terms of lower weight — which is generally what you’re paying the big bucks for — you often more than lose on the functionality front.) If Portland credit unions want to encourage daily bicycling, I don’t think that a $2,500 racing bike is exactly what the doctor ordered.

I’ve spent the past day in San Diego (that’s why blogging’s been light) and my mode of transport while I was here was a rented Bianchi Cortina — a very nice bike which retails at $429. My feeling is that $400 is pretty much the maximum sensible price for a new bike for anybody who needs to borrow money to buy one. Maybe make it $500 with the accessories (helmet, lock, lights) included. But $2,500 is just silly.

Vikram Pandit, Chief Executive Officer of Citigroup, today announced several senior management changes to support the company’s business and strategic priorities and to ensure that proper management is secured to lead these efforts.

“Our relentless focus on executing against our strategic priorities at Citi continues as we remain focused on rationalizing Citi Holdings, and on Citicorp as our core operating business,” Mr. Pandit said. “We are making consistent and substantial progress towards these goals. The senior management changes I am making today will further help in positioning our company for the future.”

Some of these changes make sense — Bill Rhodes, for instance, was always CEO of Citibank more in name than in fact. But others simply smack of yet more deckchair rearrangement, especially after the last reshuffle, in August, has already been re-reshuffled. It can’t be good that Citigroup is now on its fifth CFO in as many years. And it’s certainly not good that Pandit announces these major changes with a bunch of meaningless management jargon instead of any kind of vision.

Those first two paragraphs of the Citi press release are worth reading closely, since they reveal how utterly vapid the Citi business model really is. When all you can do is talk in a pro-forma way about “strategic priorities” and “positioning our company for the future”, it’s pretty clear that you don’t really have a clue what you’re doing, or why.

CEOs always resort to increasingly-frantic and increasingly-frequent management reshuffles before they themselves are ousted. And with the well-respected commercial banker Gene McQuade now running Citibank, I suspect the board will be mulling seriously whether they should elevate him to the top job. I give him a year to prove himself at Citibank, and then, if he succeeds, the poisoned chalice that is the job of Citigroup CEO is probably his if he wants it.

But then the Obama administration started banning earmarks in the stimulus bill and, I thought, leaving decisions on the allocation of funds to an independent central authority rather than to bickering legislators. I was rather surprised, then, to read this:

The stimulus law provided $26.6 billion for highways, bridges and other transportation projects, but left the decision on how to spend most of it to the states.

The results have been predictable: disproportionate amounts of money for roads in the middle of nowhere, while important urban transit projects go unfunded. Seattle, for instance, got none of the first tranche of federal stimulus funds; Charlotte got less than 2% of North Carolina’s.

This is why we need an Urbanist Party: so that city-dwellers can finally punch their weight in politics (Obama is the first president from a city in living memory) and so that local, state and federal government starts paying much more attention to the people who really make any modern economy run.

We wonder if Felix had been a banker whether he’d be guilty of bankslaughter. After all, in his research into the subject, he concluded early on that the issue of mortgage defaults wasn’t likely to be a huge deal. Later he changed his mind and of course, defaults proved to be a gigantic problem.

But if I were a prosecutor, I’d have no problem convincing a jury of 12 that a “reasonable” banker should’ve known that lending money to people of dubious credit risk, with low loan-to-value ratios, in an inflated market would’ve been a recipe for disaster.

Well yes — but that’s kinda the whole point. You don’t want the managers of systemically-important banks being as careless as I was on the subject of default risk. Here’s what I wrote in the piece that Weisenthal links to:

A little knowledge is a dangerous thing: I would have been much better off with a completely naive view than I was with a very basic grounding in mortgage finance.

I did some paddling around in the shallow end of the theory of mortgage bonds, and what I found surprised me: no one seemed to be the slightest bit interested in default rates. The prices of mortgage bonds were entirely a function of prepayment rates, and default rates simply didn’t enter into the equation.

Now I’m a finance blogger who prides himself on being wrong every so often (my slogan is that “if you’re never wrong you’re never interesting”) and who has essentially zero equity in being right. My job is to hold up my end of the conversation, not to be some kind of all-seeing market guru.

The manager of a systemically-important bank, on the other hand, is in a very different position, with vastly more responsibility. If such a manager did no more than do “some paddling around in the shallow end of the theory of mortgage bonds”, and on the basis of that took hundreds of billions of dollars of potentially highly-toxic assets onto his balance sheet, then yes, that’s highly reckless activity. And it’s probably reasonable to assume that if the crime of bankslaughter had been on the books at the time, then maybe such a manager might have thought twice before rushing in to such markets.

The key insight is that “financial innovation” is not the kind of thing you want too much of at too-big-to-fail institutions. Writes John Carney:

Collier doesn’t seem to have given much thought to the costs of over-deterrence. Bank executives faced with the prospect of a criminal investigation and possible conviction would likely be overly cautious. We’d lose a lot of socially beneficially risk taking by criminalizing bank failure.

For me, over-deterrence is a feature, not a bug. We’ve seen where Carney’s “socially beneficially risk taking” has landed us, and frankly I’d rather have rather a lot less of it.

Carney concludes:

Because bankslaughter is backward looking but conducting business is forward looking, it would almost certainly result in wrongful convictions. Lots of activity that looks reckless after the fact can seem perfectly sensible ahead of time. Unless the crime required bankers to know they were being reckless—in which case it would deter almost no-one and result in approximately zero convictions—it would wind up punishing bankers for just being wrong.

In an ideal world, of course, there would be no wrongful convictions simply because there would be no convictions and indeed no prosecutions. And Carney is right that it seems unfair to convict a banker of a crime just because he was heading up a too-big-to-fail institution and made a bad decision.

On the other hand, having the statute on the books would certainly increase incentives not to become too big to fail: it would help keep banks small. A capitalist society works by having private businesses take risks and fail. A capitalist society fails when private businesses are too big and systemically important to be allowed to fail. And so I think there is a case to be made that the managers of those businesses should be held to a significantly higher standard than managers elsewhere.

If I was a degenerate crackhead who snuck into your neighborhood and mugged you for $50, the Wall Street Journal Opinion Page would want me thrown in jail. Now imagine that I’m a degenerate crackhead who took out a subprime loan to move next door to you, in an arrangement that I’m likely not going to pay off. I might not even make one payment. If I default you’ll lose 10% of the value of your home from the externality effect. Assuming your home is worth $300,000, there’s a 20% chance I default in 2 years (realistic numbers), and you lose 10%; 300,000*.2*.1 = I’ve just robbed you for $6,000 while the Wall Street Journal Opinion Page cheered me on. And that’s one house – I’ll have a dozen neighbors. Now mind you, the product was great for me – I got to smoke crack indoors, in a house I could never realistically afford, which was a big plus. The subprime lender sold my loan to a pension fund in Denmark for a nice fee. It goes in the win column for us.

I’m reminded of Brad DeLong’s calculation of the amount that Edmund Andrews has gained by taking out a mortgage he couldn’t afford: if Andrews had behaved responsibly, says DeLong, he would have ended up in much the same place as he is now, but in the meantime he has spent about $97,000 extra over the course of five years. (Plus, of course, got himself a juicy book contract.) The subprime borrowers are often winners; it’s the rest of us who are the losers.

Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Frederikson & Associates in Woodside, Calif…

Price cuts are taking a heavy toll on wineries’ cash flows, and could make it difficult for them to raise prices in the future. “If you’re a $90 wine and all of a sudden you’re on the Internet at $50, how do you ever become a $90 wine again?” says Elliot Stern, chief operating officer of the Sorting Table, a Napa Valley-based wine distributor.

It’s long overdue that consumers of California wines — not least Californians themselves — became a bit price-conscious. The number of $90 California wines which are actually worth $90 on any kind of sensible global scale is minuscule: most $90 California wines were priced that high simply to stroke the winemaker’s ego and keep up with the winery next door. There’s also the fact that much California wine-growing land is astronomically expensive, or was; prices coming down on that front will also be a good thing.

What we’re seeing is some kind of two-way market finally asserting itself: volumes increasing, as Economics 101 suggests they should, as prices decline. Let’s hope this continues for a while.

Which did better over the past 15 years: Cash or Stocks?

Matt Taibbi: “When people respond by calling names and changing the subject, it means they don’t have any issue with the factual allegations in the article.”

Does the Pope read my blog?

Google answers the question: How will you get used to using Gmail without that familiar grey “BETA” text?

The legal reasoning why CDS are not insurance contracts

Jen Chung with a great roundup of the latest developments in the fiasco that is the WTC site

“Ten years ago, 55% of The Atlantic’s revenues derived from print advertising. Today, that figure is 29%.”

Another Citi management reshuffle?!

The annotated TARP application

The journalist David Halberstam wrote that McNamara mistrusted people who did not speak his language of statistics and hard data. If it ever came down to one person saying something “just didn’t feel right” or that it “smelled wrong”, he would always go with his facts over their feeling. Fatally, in the case of Vietnam, the data he received was not accurate.

When Wall Street quants fail to account for model risk, they can end up losing hundreds of billions of dollars. But that’s an improvement over what happened when McNamara failed to account for model risk: those losses were much worse.

There’s an entire world of B2Bs like The Deal and Dealscape that, in fact, are targeted at practitioners. The difficulty of the B2B game is not necessarily to write more accessibly as it is to report and write with greater sophistication and depth.

There are two problems here, as I see it. Firstly, there’s no reason that accessible journalism can’t be sophisticated and deep. It’s not necessarily easy to write accessibly about complex and sophisticated ideas, but yes, it can be done. The main problem is that it takes much more time and effort: the amount of work I put into my Wired story on the Gaussian copula function, for instance, was a good order of magnitude greater than the work that I would put into writing at that length on the blog. Maybe straitened journalistic enterprises don’t have the resources to make their stuff accessible.

But secondly I think that financial journalists are deluded if they think financial-market professionals are willing and able to wade through pages and pages of dry, jargon-heavy prose. The financial professionals I know tend to have short attention spans and have no particular eagerness to read the trades — especially any story in which they’re not quoted. Just because you’re writing for a business audience doesn’t mean your writing shouldn’t be lively and accessible. And, ideally, short.

Teitelman adds, apropos my call for more accessible financial blogging,

Salmon and his commenter skip past the hard question here, however: Can the complexity of finance (and economics) be effectively captured by the kind of simple explanations required by an audience that barely knows the basics? Let’s put it another way: In telling that “simple” story, is the journalist distorting the situation, highlighting certain aspects, accentuating certain tendencies and ignoring others?

It’s true that the mass audience does tend to be attracted by simple explanations; I got a worryingly large number of emails after my Wired piece came out essentially saying “thanks, you’ve now explained everything”. Which of course one article about one formula could never do. But I never asked for journalists to oversimplify, and there’s no reason that accessible journalism can’t show many sides to any given story. What’s more, trade journalism is also guilty of many of the sins which Teitelman enumerates.

It’s not just journalists, of course, who will highlight certain things and ignore others. Often, the journalists do that just because they rely, of necessity, on their industry sources — and their sources are doing it too. One of the problems with trade journalism is that a lot of day-to-day reporting is done via the banks’ PR departments, and the PR departments tend only to serve up managing directors and above for interviews. And when you talk to high-level people, you’re often talking to people who are genuinely ignorant. Think of AIG Financial Products, as described by Michael Lewis:

It’s hard to know what Joe Cassano thought and when he thought it, but the traders inside A.I.G. F.P. are certain that neither Cassano nor the four or five people overseen directly by him, who worked in the unit that made the trades, realized how completely these piles of consumer loans had become, almost exclusively, composed of subprime mortgages.

Or think about Bob Rubin, who famously told Carol Loomis that he’d never heard of the notorious liquidity puts which ended up all but destroying Citigroup until after it was far too late — despite the fact that Rubin, more than any other individual, was meant to be the person taking the big-picture view of the bank’s overall risk profile.

Looking back at the history of journalism over the course of the financial crisis, the problem was never too much oversimplification as it was too many journalists taking a narrow view of the market: they didn’t think nearly enough about — or push bankers to answer tough questions about — big-picture systemic risks. It’s a hugely important role of journalism to put events in large-scale perspective. Those stories should be written more often, and they should be written as accessibly as possible, by journalists and bloggers both.