Tuesday, June 30, 2009

Taibbi on Goldman PR

Just a brief follow-up on my post about the PR departments at investment banks from a few weeks ago. Rolling Stone writer Matt Taibbi discusses the tact Goldman Sachs took regarding his big piece I'm sure you've heard about here.

Sunday, June 28, 2009

Now That's An Aggressive Advertising Strategy

Talk about going after the competition:

Saturday, June 27, 2009

Rating the Rating Agencies

One of the more disappointing elements of the administration's proposed financial regulation reform is the absence of any real action regarding the rating agencies. After the tongue-lashing Congress gave rating agencies executives regarding the whole we'd-rate-this-stuff-if-it-were-structured-by-cows fiasco, I assumed that this would be addressed. But as Barry Ritholtz pointed out, the rating agencies were largely left out of the outline.

Although much of the criticism of rating agencies stems from the inherent conflict of interest of the issuer-pays model the big three* use, the real problem is the rating agencies' government-ordained role in the financial system. The issue is not that investors became overly reliant on on the rating agencies, but rather that the rating agencies are embedded into regulatory models, as Marc Flandreau and Norbert Gaillard point out. Mutual funds, banks, and other financial institutions all have requirements limiting what securities they can own based on how those are holdings are rated. Even if the financial institutions don't want to care about what the rating agencies say, they law says they have to.

*Standard & Poor's, Moody's, and Fitch

It's unfortunate these regulations gives so much power to these--or any other--institutions. I don't blame the rating agencies for getting things wrong, because it's foolish to expect them to get them right. You could count on one hand the number of people that actually predicted the crisis. What makes the rating agencies better at this than anyone else? If you really could, for instance, predict that Lehman Brothers would fail, you'd make a lot more money shorting the stock on your own than you would downgrading the rating while working at Moody's. Their models are essentially based on what has happened in the past**. No amount of regulation is going to improve the rating agencies -- or anyone else's -- ability to forecast the future.

** Mortgage-backed securities never defaulted--until they did.

So the problem is not reforming the rating agencies themselves, but rather reforming the system to remove their influence. The rating agencies themselves are now using the First Amendment to argue they shouldn't be responsible for what they write. If the rating agencies are now backing away from what they've said in the past, why should the government continue to give them oligopoly for the future?

Thursday, June 25, 2009

Money Well Spent

The WSJ today makes the SHOCKING discovery that the government is paying up to $60 million per year to help employees pay off their student loans. It says the practice is coming under growing "scrutiny".

WASHINGTON -- Congress and federal agencies are expected to spend as much as $60 million in fiscal 2009 on a little-known taxpayer-funded perk: repaying government employees' college loans.

Paying off staffers' old student loans is rare in the private sector. And while total spending on the benefit in the federal government remains relatively small, it has multiplied since the program began seven years ago, according to federal records and government officials.

And gives us this "helpful" quote:

Carol Sladek, head of the work-life consulting practice at Hewitt Associates, a human-resources consulting company in Lincolnshire, Ill., called student-loan repayments an unusual benefit. "I have never heard of that practice in the private sector, much less in this economy," she said

First, why do people insist on compartmentalizing compensation into things like perks, rather than just looking at the overall pay package? Instead of making student loan payments, the government could instead just pay staffers $10,000 more per year. I highly doubt there would then be a story about the "scrutiny" growing over staffers getting paid too much. For some reason people tend to view "free" stuff as having a value much higher than what it's really worth.

Second, it seems to me this is money well spent. About 48.7% of the student loan payments occurred within the Department of Justice, where staffers get paid far below the standard rates they could earn in the private sector. An entry-level DOJ attorney would have made just $60,989 this year, nowhere near the $160,000 top law firms have typically paid first-year associates*. Even an experienced attorney joining the DOJ at the top of its payscale can't make more than $153,200. An extra $10,000 in loan payments seems like a small price to pay to give the government a chance to attract top-level talent that would otherwise not be able to afford work in the public sector.

* Even some of the firms that have deferred associates have offered to pay more than $70K.

Thursday, June 11, 2009

Why Oh Why Can't We Have A Better Blogosphere? (Brad DeLong Crash-and-Burn Edition)

I like Brad DeLong and often agree with what he has to say, but he can be a pretty big dick (for lack of a better term), especially about the press*.

* Some recent headlines include: "We Need to Be Who We Can Be--and That Means We Need to Not Listen to the LIkes of Thomas Friedman and Richard Cohen", "New York Times Crashed-and-Burned-and-Smoking Watch (David Brooks Edition)", "Washington Post Crashed, Burned, and Smoking Watch: Charles Krauthammer", etc.

Which is why I couldn't help but find funny Judge Richard Posner's critique of DeLong's review of Posner's most recent book. One can only imagine what DeLong would say if someone made factual errors like he did. And notice that he still hasn't even made the corrections to his blog post, even after people pointed them out.:

I am not in fact "leader of the Chicago School of Economics" and I am not a judge of the Fourth Circuit**. (Later in his review DeLong calls me "one of America's leading public intellectuals," with "very wide" influence--both of which statements are incorrect***.)

** Posner's on the Second Circuit, FYI.
*** Yes, part modesty/self-deprecation by Posner, but, still, he's got a point.

To borrow (and slightly modify) a phrase from DeLong, Why Oh Why Can't We Have a Better Blogosphere?

Friday, June 5, 2009

And We're Listening to Them Why?

Apparently, a Goldman Sachs research report revising its outlook on oil helped send oil prices higher this week. From CNN:

Also supporting oil prices, Goldman Sachs (GS, Fortune 500) released a research report Thursday raising its 3-month price target for crude oil to $75 a barrel from $52 a barrel. By the end of 2009, the report predicts oil will reach $85 a barrel, up from $65 a barrel. And by the end of 2010, Goldman forecasts that crude will hit $95 a barrel.

"When Goldman Sachs starts to talk bullish the market seems to move like it just got an offer that it just can't refuse," said Phil Flynn, senior market analyst at Alaron Trading, in his daily research note.

This would be the brilliant analysts at Goldman Sachs that predicted this last May:

Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.

Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.

An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.

Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.

Ummmm, oops:

Thursday, June 4, 2009

My Apologies

About a week ago, I criticized Congress for resorting to "elementary school-like tactics," asking in what other professional world they'd be acceptable. The WSJ finds a case of it in the business world today:

Wednesday's shareholder meeting was marked with unexpected acrimony. Biogen's chairman, Bruce Ross, recessed the meeting for more than three hours over shouted objections from Mr. Icahn's representatives.

Biogen's executives then retreated to a small patio at the headquarters of the American Academy of Arts and Sciences in Cambridge, where the meeting was held, and phoned major shareholders to solicit support.

Mr. Icahn's nominees returned to a Boston-area hotel and did the same.

As I always say: Real mature, guys, reaaallllllll mature.

Wednesday, June 3, 2009

Would That Really Be Good?

Great article today from the Wall Street Journal on financial institutions' efforts to lobby for an accounting rule change:

Not long after the bottom fell out of the market for mortgage securities last fall, a group of financial firms took aim at an accounting rule that forced them to report billions of dollars of losses on those assets.
Marshalling a multimillion-dollar lobbying campaign, these firms persuaded key members of Congress to pressure the accounting industry to change the rule in April.
The payoff is likely to be fatter bottom lines in the second quarter.

I’d like to set aside the ethics of politicians such as Rep. Paul Kanjorski, who over the past two years received "$704,000 in contributions from banking and insurance firms, the third-highest total among members of Congress, according to the FEC and the Center for Responsive Politics.”* I’ll also ignore for the day the debate over which accounting rule is right.

* Change-congress.org

But take note of this quote from a Kanjorski spokesperson:

“A spokeswoman says Rep. Kanjorski believes the accounting industry's rule-making body, the Financial Accounting Standards Board, or FASB, made the right move since neither mark-to-market critics nor advocates are "entirely pleased with the outcome." She says campaign contributions didn't factor into the congressman's thinking.”

Why would a decision be good just because both sides are unhappy? Shouldn’t we be making decisions because…I don’t know…that decision is simply the right thing to do. There should be no need to compromise when one side is wrong.

Just more typical PR BS. But at least Kanjorski’s people tried to defend him.