Off the Wires

Wall Street - What Is It Good For?

November 22nd, 2010  |  Source: The New Yorker

In the latest New Yorker, fighting words:  

Much of what investment bankers do is socially worthless.

For years, the most profitable industry in America has been one that doesn’t design, build, or sell a single tangible thing.


A few months ago, I came across an announcement that Citigroup, the parent company of Citibank, was to be honored, along with its chief executive, Vikram Pandit, for “Advancing the Field of Asset Building in America.” This seemed akin to, say, saluting BP for services to the environment or praising Facebook for its commitment to privacy.

During the past decade, Citi has become synonymous with financial misjudgment, reckless lending, and gargantuan losses: what might be termed asset denuding rather than asset building. In late 2008, the sprawling firm might well have collapsed but for a government bailout. Even today the U.S. taxpayer is Citigroup’s largest shareholder.

The award ceremony took place on September 23rd in Washington, D.C., where the Corporation for Enterprise Development, a not-for-profit organization dedicated to expanding economic opportunities for low-income families and communities, was holding its biennial conference. A ballroom at the Marriott Wardman Park was full of government officials, lawyers, tax experts, and community workers, two of whom were busy at my table lamenting the impact of budget cuts on financial-education programs in Vermont.

Pandit, a slight, bespectacled fifty-three-year-old native of Nagpur, in western India, was seated near the front of the room. Fred Goldberg, a former commissioner of the Internal Revenue Service who is now a partner at Skadden, Arps, introduced him to the crowd, pointing out that, over the years, Citi has taken many initiatives designed to encourage entrepreneurship and thrift in impoverished areas, setting up lending programs for mom-and-pop stores, for instance, and establishing savings accounts for the children of low-income families.

“When the history is written, Citi will be singled out as one of the pioneers of the asset movement,” Goldberg said. “They have demonstrated the capacity, the vision, and the will.”

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US banks staring at a $100bn equity capital shortfall

November 21st, 2010  |  Source: &

The top 35 US banks will be short of between $100bn and $150bn in equity capital after the new Basel III global bank regulations are imposed, with 90 per cent of the shortfall concentrated in the biggest six banks, according to Barclays Capital.


The study assumes the banks will need to hold top quality capital equal to 8 per cent of their total assets, adjusted for risk.  This 8 per cent tier one capital ratio, a key measure of bank strength, provides a one point cushion against falling below the effective global minimum of 7 per cent set in September by the Basel Committee on Banking Supervision.

The Basel III reforms will hit banks in two ways – by gradually tightening the definition of what counts as tier one capital; and by forcing banks to increase the risk adjustment for big swathes of their businesses.

Banks can respond by increasing their capital through retained earnings or equity issuance or they can cut their risk-weighted assets through sell-offs and by cutting back on risky business lines.

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Get ready for it, they’re coming. No, not those apocryphal black helicopters from the masters of the New World Order, but something even more powerful - those anonymous banking examiners of the Bank for International Settlements in Basel, Switzerland with their reserve ratios.

This development should be known as the “Stultifyingly Boring Banking Agreement”, but it’s actually called Basel III.

Mark Twain’s Autobiography Flying Off the Shelves

November 21st, 2010  |  Source:



When editors at the University of California Press pondered the possible demand for “Autobiography of Mark Twain,” a $35, four-pound, 500,000-word doorstopper of a memoir, they kept their expectations modest with a planned print run of 7,500 copies.


Now it is a smash hit across the country, landing on best-seller lists and going back to press six times, for a total print run — so far — of 275,000. The publisher cannot print copies quickly enough, leaving some bookstores and online retailers stranded without copies just as the holiday shopping season begins.

“It sold right out,” said Kris Kleindienst, an owner of Left Bank Books in St. Louis, which first ordered 50 copies and has a dozen people on a waiting list. “You would think only completists and scholars would want a book like this. But there’s an enduring love affair with Mark Twain, especially around here. Anybody within a stone’s throw of the Mississippi River has a Twain attachment.”

Farther upriver, at the Prairie Lights bookstore in Iowa City, Paul Ingram, the book buyer, said he initially ordered 10 copies, but they disappeared almost immediately.

“We are dearly hoping we’ll get more copies in a couple of weeks,” Mr. Ingram said. “I’m sure every bookseller in the world is saying, ‘I should have been sharper, I should have thought this one through more carefully.’ ”

Earlier this week, the book was out of stock at a handful of Barnes & Noble stores in Chicago, Boston and Austin, Tex. On, it is back-ordered for at least two to four weeks. Some independent booksellers said they had been told, much to their despair, that they would not receive reorders until mid-December or even January.

“It’s frustrating,” said Rona Brinlee, the owner of the BookMark in Neptune Beach, Fla. “In this age of instant books, why does it take so long to reprint it?”

Finance: QE2's shaky launch

November 19th, 2010  |  Source:

Wrong direction

So far, the second round of quantitative easing is failing





WHEN the Fed announced a new round of quantitative easing on November 3rd, part of the aim was to drive down bond yields in the medium-term part of the yield curve. One of the main arguments for QE is that it is simply a natural extension of conventional Fed policy; yields are so low at the short-end of the curve that the Fed has to intervene in the bond markets to have any impact at all.

Full article

IBM Software-Packed Chevy Volt Hits the Road

November 19th, 2010  |  Source:


After a massive restructuring, GM is starting to reinvent itself as a new type of car company for a new century. The first step in this transformation was creating the Chevy Volt electric car, and to help out, GM turned to IBM.


Together, IBM and GM wrote 10,000 lines of code for the car's onboard computer system and each Volt has its own IP address. Here, eWEEK looks at how two iconic companies combined efforts to create a new type of automobile.

Bright Picture for US Online Holiday Sales

November 17th, 2010  |  Source:


eMarketer forecasts a 14.3% increase


eMarketer predicts US online holiday season sales, defined as all online sales in November and December, will build on a strong 2009 showing and rise a further 14.3% over the same period last year.

“Holiday shopping is ideally suited to the internet,” said Jeffrey Grau, eMarketer principal analyst and author of the new report “Online Holiday Sales Forecast: Optimism Is in the Air.” “Consumers appreciate the convenience and product selection online, as well as the abundance of resources available for finding good deals, especially for cost-conscious shoppers trying to weather the tough economy.”

This season’s growth of 14.3% will bring retail ecommerce holiday season sales to $38.5 billion, up from $33.7 billion last year.

Facebook’s New Data Center to Cost $450 million

November 16th, 2010  |  Source:

Facebook’s running out of servers to handle its 500+ million users, so it has decided to build a new data center in North Carolina that will cost a whopping $450 million to complete.


The announcement was made by North Carolina Gov. Bev Perdue, who said that the facility will take 18 months to complete and will employ 35 to 45 workers to operate (not including the 250 jobs that will be created during its construction). It is being built in Rutherford County, which is to the west of Charlotte.

Facebook and the governor are also touting the data center’s environmental friendliness and energy efficiency. It will “employ innovative cooling and power management technologies” and utilize Facebook-developed technology that will make the data center “rely on fewer than half the computing power (and related energy consumption) that a similar data center would have required only a few years ago.”

Facebook broke ground on its first data center in January (based in Oregon) to deal with its rapid growth. However, the social network’s growth has been so explosive that it decided in the middle of construction to double the size of the center.

Now it looks like that won’t be enough to support Facebook’s skyrocketing growth, so Facebook is putting down even more money in exchange for the raw computing power necessary to keep the site afloat.

And the Nonprofit Quarterly points to this campaign:

Facebook's Coal Problem Grows Bigger

The cost of Facebook's new data center -- nearly half a billion dollars -- is enough to take your breath away, but paralleling the site's staggering growth in users and revenue is its carbon footprint.

Greenpeace recently launched an effort to convince Facebook that its first data center, which is coal-powered, is detrimental to both the environment and its image. To counter, Facebook launched a PR campaign to tout the ways the company is going green. For example, Facebook, in the announcement of the new data center, bragged about technologies they had developed that permitted twice the data to be processed using the same amount of energy.

New book skewers Wall Street from a different angle

November 16th, 2010  |  Source:


The financial crisis has proven to be a cornucopia for authors and documentary film makers. We've seen a whole lot of thick books, that's for sure. The dominant genre for these books is the lightly critical journalist's take, the fly-on-the-wall approach that's driven by incredible insider access, not unlike Bob Woodward's Washington approach.

But a genre buster has cropped up. Matt Taibbi's new book, Griftopia, is written not from the insider perspective but from a highly critical populist standpoint, exactly what you would expect from the Rolling Stone writer who coined the phrase "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into everything that smells like money," referring to Goldman Sachs.

We'll have to see whether this perspective resonates in the public mind. In the run-up to Dodd-Frank, it seemed like this view was winning out. The big Wall Street banks "are the dominant political powers in the country now," Taibbi told Reuters. "When you get so much political influence that you can't not make money, it's just like a license to steal and that is what the book is about," he said. Obviously, the industry would take issue with this.

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Why is America so rich?

November 12th, 2010  |  Source: The Economist

ECONOMIC gloom and doom aside, America remains the world's richest large country. It's generally estimated to have a per capita GDP level around $45,000, while the richest European nations manage only a $40,000 or so per capita GDP (setting aside low population, oil-rich states like Norway). Wealth underlies America's sense of itself as a special country, and it's also cited as evidence that America is better than other economies on a range of variables, from economic freedom to optimism to business savvy to work ethic.


But why exactly is America so rich? Karl Smith ventures an explanation:

I am going to go pretty conventional on this one and say a combination of three big factors

  1. The Common Law
  2. Massive Immigration
  3. The Great Scientific Exodus during WWII

You’ll notice that four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil. Without the petro-kronors they probably wouldn’t be so hot.

You’ll also notice that 3 of the top 4, again with Norway the odd man out, are immigrant nations. The founder effect here should be clear.

The bonus from the great exodus is definitely waning. Most of our hey-day German and Jewish scientists are dying off, but its still given us a boost that lingers to this day. There is no fundamental reason why the US should be the center of the scientific world but for a time it was the only place in the world safe for many scientists.

It's a difficult question to tackle because there's so very much to it. America jumped to a huge productivity lead early last century by developing a resource- and capital-intense, high-throughput style of manufacturing producing mass market goods. The fractious, class-riven European continent struggled to copy this technology, and while adoption of these methods eventually led to a period of rapid catch-up growth, the process of catch-up was never quite completed. And so that's one gap to explore.

There's also the question of what exactly one is comparing. What if we take similar European and American metropolitan areas and adjust for human capital and hours worked? On that basis, the difference between America and northern Europe looks relatively small. One might then focus on the ways in which America's more integrated domestic market leads to a lower level of within-continent inequality, even though national inequality levels in Europe compare favourably with America's.

The size of the market may be more important than we imagine. As Mr Smith notes, four of the top five HDI countries share the Common Law. They also speak English. In a world in which national and cultural barriers still bite, America's wealth could be chalked up to the fact that it's a uniquely large and uniform nation. Common rules, culture, language, and so on facilitate high levels of trade and mobility. National and cultural barriers within Europe, by contrast, work to limit the extent to which the economic potential of the continent can be reached.

Mr Smith also gets at something important in discussing immigration and talent. The economic geography of the world is lumpy, and talent likes to clump together into centres of innovation. Through fortune and foresight, America managed to develop world-leading centres of talent in places like Silicon Valley, Boston, and New York. Relatively open immigration rules and the promise of a safe harbour for war refugees, including persecuted Jews, helped build these knowledge centres. When one combines that innovative capacity with a system that makes it relatively easy to develop ideas and relatively lucrative to exploit them economically, the potential is there for rapid and sustained growth.

America does seem to be special in important ways, but it's not always clear what those ways are. A liberal economic order and geographically mobile population are important, but so is the level of education, the promise of social mobility, and the openness of America's borders. It's worth keeping all of that in mind as the country's leaders think about the ways economic policy should change in the wake of the Great Recession.

Food price fears as US warns on crop yields

November 10th, 2010  |  Source:

The spectre of inflation loomed over agricultural markets after the US slashed key crop forecasts and warned of shortfalls in grains.


The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925.

“The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” the agency said in a separate grains report.

Benchmark Chicago corn futures soared above $6 a bushel for the first time since August 2008, before ending lower. Soyabeans rose 4.3 per cent and New York cotton futures posted a record above $1.51 a pound. The price rises have revived fears of a repeat of the global food crisis of 2007-08.

In Europe, milling wheat surpassed a peak reached after Russia banned grain exports in August in response to a devastating drought.

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