Felix Salmon

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Remember financial reform? It’s been two years since the passage of the Dodd-Frank Act and nearly as long since Basel III arrived. Thankfully, two speeches yesterday by central bankers give us an indication of where we are.

In a speech in New York City, Fed Governor Daniel Tarullo argues that the financial crisis revealed two main problems. First, financial firms, including those not directly regulated by the Fed, became too big to fail and required bailouts. Second, the shadow banking system, including those infamous derivatives, grew to become enormous and unstable, threatening the safety of the economy.

Tarullo says that we’ve done a lot about the first problem. Regulators now have power to oversee all systemically important firms, Tarullo says, capital requirements have been raised, and the FDIC now has “liquidation authority” and power to impose losses on creditors. This won’t “solve” the too-big-to-fail problem, Tarullo says, but it’ll help.

But fixing the shadow banking system hasn’t been going as well:

Although some elements of pre-crisis shadow banking are probably gone forever, others persist. Moreover, as time passes, memories fade, and the financial system normalizes, it seems likely that new forms of shadow banking will emerge. Indeed, the increased regulation of the major securities firms may well encourage the migration of some parts of the shadow banking system further into the darkness – that is, into largely unregulated markets.

In a much less wonky speech delivered on the same day, Mervyn King, the governor of the Bank of England, has an interesting notion: In the UK, at least, newly empowered central bankers may get a lot more vocal. Here’s how King describes his financial crisis do-over:

With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this … We should have preached that the lessons of history were being forgotten – because banking crises have happened before.

King’s view is the British take on regulation. Good regulation, he says, is about  “understanding and guarding against the big risks, not compliance with ever more detailed rules.” It’s fascinating to think of central bankers shouting “from the rooftops” and operating on principles rather than rules, even if the UK’s experiment with principles didn’t save them from the crisis.

In America at least, we’re stuck with a rules-based system in which the substance of those rules is – slowly – being decided. Look, for example, at the protracted debate over the Volcker Rule or the fight over bank counterparty exposure that Tarullo is overseeing.

And on to today’s links:

Regulations
After hearing bank CEOs’ complaints, the Fed sticks to the silent treatment – WSJ
The SEC “courageously assails tiny firms at the pace of a three-toed sloth” – ProPublica

Facebook
Your complete guide to valuing the biggest tech IPO of all time – Lex
Facebook IPO could be priced in the $27-to-$35 range – TechCrunch
Facebook’s IPO could make Zuckerberg a cool $18.7 billion – WSJ

New Normal
How income inequality and household debt are connected – IMF
American’s expected retirement age has jumped seven years in the last decade and a half – Economix

EU Mess
It’s time to start calling Europe’s trouble a depression – The Economist

Inefficient Markets
Five years after Blackstone’s IPO, investors still don’t know how to value PE firms – Term Sheet
Carlyle prices IPO at $22 – Dealbook

Alpha
Warren Buffet’s Berkshire Hathaway: lagging the S&P for the third year in a row – Bloomberg
Introducing the Warren Buffett running shoe – DealBook
28% of Americans think gold is the safest investment – The Big Picture
Mutual funds confront not-quite-as-dumb money – Bloomberg Businessweek

Diplomacy
Blind Chinese dissident: Let me leave the country on Hillary Clinton’s plane – Daily Beast

Quotable
Einhorn: Ben Bernanke is force-feeding us “the 36th jelly donut of easy money” – HuffPost

Wonks
Krugman explains why he attacked Bush’s tax cuts, but supports them now – Reddit
Is higher inflation really the answer? – MacroMania
We have no idea how the Fed could get us to 4% inflation – Econobrowser

Oxpeckers
The reporter who saw the financial crisis coming – CJR

Billionaire Whimsy
Virgin Atlantic unveils “Little Richard,” the Richard Branson-shaped ice cube – USA Today

From 1pm ET I’ll be taking part in a chat about the final episode of Frontline’s Money, Power and Wall Street. Feel free to jump in!

As you have no doubt heard by now, The Scream sold at Sotheby’s for $120 million yesterday, prompting Mark Gongloff to wax apocalyptic about “the big squeaky speculative bubble in the art world”. He’s absolutely wrong: whether there’s a bubble or not, this purchase was not speculative. The buyer, I’m quite sure, intends to keep it until he dies; this is not going to get flipped for some great profit. Still, this painting is a great example of exactly what sells for huge amounts of money these days.

Remember the Card Players which sold for $250 million? Or, for that matter, the Jeff Koons Rabbit I wrote about earlier this week, which is probably worth the same amount of money as The Scream, more or less? The three artworks all have something in common: they’re editions, broadly speaking. There are four Screams, five versions of the Card Players, and four Rabbits. And in each case, the value of any given work goes up, not down, as a result of the existence of the others.

That’s because what people are buying, when they buy one of these pieces, is a cultural icon, something instantly recognizable. As Clyde Haberman says of the Scream, “if you’ve never seen a tacky facsimile of it, there’s a chance that you have also never seen a coffee mug, a T-shirt or a Macaulay Culkin poster”. And truth be told, it’s not exactly Good Art. Edvard Munch is a decent Norwegian symbolist, but to give you an example of what we’re talking about here, the painting on the right, Vampire, is the one which held the previous auction record for the artist, at $38 million. It’s really not all that far from what you find in any art class of tortured adolescents.

The real value of the Scream, then, the reason that a pastel on cardboard sold for $82 million more than the price of the oil-on-canvas Vampire, lies precisely in all those mugs and t-shirts and Home Alone one-sheets. Whatever was being bought, here, it wasn’t really art, in any pure sense. It was more the result of a century’s worth of marketing and hype.

And while the Scream is an extreme example of the phenomenon, it can be seen in every major modern and contemporary art auction. It explains pretty much all of Damien Hirst, for instance, not to mention Takashi Murakami, a man whose paintings go up in value proportionally with the number of Murakami Louis Vuitton handbags spotted in the wild.

Meanwhile, if you want to see a pure art market, one based on connoisseurship rather than branding, well, there’s no such thing. But one very interesting place to look is China, of all places — the market which westerners love to dismiss as the place where the only thing that matters is the label on your bottle of Chateau Lafite.

In fact, the Chinese market is much more sophisticated than that. The record price for a Chinese painting, $65 million, is held by Eagle Standing on Pine Tree with Four-character Couplet in Seal Script, a large piece by Qi Bashi dating back to 1946. Qi was a master, who painted the work at the age of 86, and who worked very much within a long tradition of Chinese art. There’s nothing revolutionary or iconic about this work: it’s just a masterful piece which can be located near the end of a very long tradition.

Or, to take another example, an old porcelain bowl, roughly the size of your hand, and looking like nothing so much as the thing which lives by the door where you keep your keys, sold for $27 million at Sotheby’s in Hong Kong last month. It might be a trophy, but it’s not an obvious, branded trophy in the way that the Scream is.

Now, I don’t think that the Chinese auction market is particularly transparent or reliable: I suspect that it’s used quite a lot as a way of laundering bribes. But it does frequently set records which don’t fall into the branded-object-of-fascination category. And for that alone it makes a refreshing change from what we’re seeing in New York.

Wired has a big article on A/B testing this month, which makes a good point:

Today, A/B is ubiquitous, and one of the strange consequences of that ubiquity is that the way we think about the web has become increasingly outdated. We talk about the Google homepage or the Amazon checkout screen, but it’s now more accurate to say that you visited a Google homepage, an Amazon checkout screen.

But it’s not just web pages that change with A/B testing, it’s prices, too. And Exhibit A in this regard is the Financial Times. Go to this page, laying out the cost of subscribing to the FT, and you could get any number of different prices. A standard online subscription in the United States, which excludes the Lex column and a handful of other extras, shows up for some people as $4.99 a week. Others see $5.39, $5.75, $5.79, or $6.25. Guan Yang reported this morning, for instance, that on his first attempt at viewing the FT page, he was given a price of $4.99; when he opened the same page in Chrome, the price was $6.25. Chrome for Windows, meanwhile, revealed a price of $5.39.

All of these prices are pre-tax, and are weekly based on an upfront annual commitment: the equivalent of those newspaper ads touting incredibly low airfaires which are “one-way based on round-trip purchase” and exclude hundreds of dollars in taxes. When I subscribed to the FT last year, they charged me an extra 8.88% in sales tax — which means that someone buying a subscription at $6.25 a week will end up seeing their credit card charged a total of $353.86.

What’s more, Rob Grimshaw, the FT managing director who sets all these prices, tells me that in fact that annual price is “heavily discounted because those customers are willing to make a longer term commitment.” That, in turn, implies that the real price of an online subscription, by Grimshaw’s measure, is $35 a month. Which, adding on sales tax, comes to $457.29 per year. And that includes no premium content at all.

By contrast, a basic online subscription to the NYT is $15 every four weeks, tax included: that’s $195 per year. And the WSJ charges $17.29 every four weeks, or $224.77 per year; it’s a bit cheaper, $207.48, if you pay by the year. It’s not the NYT which is the outlier, it’s the FT.

Even if you reload that FT page in multiple browsers on multiple operating systems and eventually get the cheapest possible $4.99 offer and pay a whole year up front, you’re still paying $282.52 for a year’s access, which is 36% more than the WSJ charges. The recommended retail price, or RRP — the default amount that the FT will charge me for renewing my subscription — is $353.86, or a 70% premium over the WSJ rate. And if I want the full FT online package, including Lex, then that’s $486.35 annually, or 2.3 times the cost of a WSJ online subscription. Alternatively, it’s $53.35 per month, which means that you end up paying more in four months than you would for a full year of the WSJ.

I don’t think it’s any coincidence that I run into the FT paywall much more often than I run into any other paywall. Grimshaw says that the problem of hitting the paywall when following links on Twitter or Facebook “was fixed some months ago and seems to be working well”; I’d beg to differ. He also says, more encouragingly, that there will be social login later this year, which will allow non-subscribers to view a (very) limited number of articles by logging in with their Twitter or Facebook accounts, rather than having to set up and remember an FT-specific username and password.

But I fear that so long as the FT keeps up this super-premium pricing strategy, it’s going to wind up chasing local maxima. Here’s how the Wired article puts it:

A/B tests might create the best possible outcome within narrow constraints—instead of pursuing real breakthroughs. Google’s Scott Huffman cites this as one of the greatest dangers of a testing-oriented mentality: “One thing we spend a lot of time talking about is how we can guard against incrementalism when bigger changes are needed.”

If you test lots of prices for your FT subscription, it makes sense that the higher the subscription price, the higher the revenues generated, and the higher the publisher’s profits. Most of the FT’s subscribers have very little price sensitivity: either they’re on expense accounts, or they’re incredibly rich, or their subscriptions are handled by some kind of support staff and they never even know how much they’re paying. In that world, it makes sense to raise the RRP as much as possible, since the RRP is the rate that all renewals get charged at, and most renewals are automatic. Even if the amount stands out on some expense report and eyebrows get raised, the FT, by policy, won’t refund the payment. “We do not provide refunds to customers who wish to cancel their subscription mid-term but the subscription will remain valid until the term of the subscription expires” is how Grimshaw puts it in the official FT email.

The result is that the FT’s readership will slowly drift further and further away from the 99% — something which has to affect its journalism at some point. When real people look at the price of an FT subscription, they’ll have much the same reaction as they do when they look at the prices at Cipriani. They won’t just refuse to pay, they’ll take away the understanding that the FT was never written for them in the first place, and that the readership of the FT is a chummy group of of rich people who probably like the exclusivity that a high entrance price provides. It’s like the membership fees at exclusive golf clubs, designed more to keep the middle class out than to actually pay for any particular service.

And while it’s possible to make the case that the global 1% is big enough and rich enough to comfortably support a publication like the FT, it’s dangerous to chase that demographic too assiduously, to the exclusion of everybody else. If you want to be a newspaper rather than a newsletter, you have to aspire to being more than a service vehicle for bankers.

After all, it’s pretty much impossible to make the case that the journalism in the FT — the product being paid for — is so better than the journalism in the WSJ or NYT that it’s worth twice as much money. Especially when much of the best FT journalism is still free, on Alphaville and Martin Wolf’s Economists’ Forum.

What’s more, at least for readers in the US, the FT isn’t remotely comprehensive enough to suffice as a one-stop shop for business news. The FT has some fantastic content, but it needs to be read in addition to, rather than instead of, the NYT / WSJ / Reuters / Bloomberg. As a result, you need to be really price-insensitive to buy it: you can get access to all four of those sources online for less than the price of a single premium FT subscription. When a five-course meal costs twice as much as a four-course meal, you generally go with the four courses.

And as I can attest, because news is social, you don’t end up reading the FT very much even after you’ve paid through the nose for your subscription. I read news which is shared with me, and the people in my social circles don’t share FT stories all that often. In turn, I want to read news I can share, and it’s very hard to share FT stories, since I can’t assume that the people in my social circles, or the people reading Counterparties, have FT subscriptions.

This I think is the real problem with the FT’s pricing strategy. In the old world, the more you charged for a subscription, the more it was valued, and the more your journal was read by its subscribers. In the social world, the more you charge for a subscription, the less it gets read by its subscribers. As a result, the amount I end up paying per story that I read becomes enormous. I kinda wish the FT had a ticker, like the NYT did at one point, telling me how many stories I’ve read this month. It would give me some kind of masochistic thrill, working out what vast sum I was paying per article. Either way, over the long term, the marginal cost of reading an FT article will become so high that even business-news junkies like myself won’t be able to justify it any more.

On the other hand, there could be a silver lining here. The FT’s pricing doesn’t make sense as a long-term strategy: it makes new-customer acquisition extremely difficult, and it only serves to remove the FT ever further from the minds of the global professionals it really wants to reach. As a short-term revenue-maximization strategy, on the other hand, charging people as much as $640 a year for an online-only subscription makes all the sense in the world. And if Pearson intends to sell the FT in the next year or two, it would surely love to be able to point to healthy profits and cashflows as a way of justifying some enormous purchase price.

I’m going to hold out hope, then, that the FT’s prices are a temporary aberration, a way of extracting some huge sum from potential buyers. I don’t really think that the FT will ultimately end up being sold on some multiple of profits or cashflows, but those things can never hurt when you’re deep in negotiations. Once the FT is finally sold, to Thomson Reuters or to somebody else, its subscription price will be able to revert to reality. But it’s not going to come down before then.

Update: My commenters have worked out that if you really want a cheap FT subscription, you can get one for less than $50 if you live in India, and you’re more than welcome to pay with a foreign credit card. This actually works, it seems, for people with VPNs.

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Nothing amplifies like the Internet. Witness the latest arguments over whether we’re in another tech bubble that have set off an echo chamber of self-interest, defensiveness and conjecture.

Last week, NYT tech reporter Nick Bilton slammed the “no revenue” formula for startup success. (Instagram, you’ll recall, made no money and was sold to Facebook for $1 billion last month.) In its “Human’s Guide To The Tech Bubble,” Buzzfeed attempted to explain why we’re in a bubble:

Because companies that make no money are being given lots of money for reasons that make no sense to normal people. This is not inherently bad or wrong – there are ways a company can be valuable in the long term beyond making money right now – but when this happens a lot and very suddenly, it means there’s a bubble. When Evernote gets valued at a billion dollars, it’s a bubble. When failed startups get picked up for tens of millions of dollars, it’s a bubble. Basically, when strange and inexplicable things start happening every day, it’s a bubble.

Tech investors, predictably, weren’t happy with Bilton’s piece. Marc Andreessen suggested revenue doesn’t matter to a big company acquiring a startup. Ubiquitous angel investor Ron Conway also denied there’s a bubble, adding, somewhat unbelievably, “the companies getting funded have sales and profits”. Paul Graham argued that high prices do not a bubble make. And Chris Dixon thinks it’s complicated – public tech companies are not overvalued, he wrote, but he admits that seed-stage valuations seem frothy.

Dave Winer suggests that the bubble talk largely applies to young companies hoping someday to make money from advertising. And Peter Kafka has found yet another unproven startup raising millions of dollars in seed funding. That one, too, is ad-based, which is interesting given that Facebook is showing signs of struggling to sell ads.

Whether you call it a bubble or not, remember this: There’s any number of well-funded startups chasing a market that’s set to explode. Some may even make real money. Total spending for online video ads is expected to triple in the next four years, mobile ad revenue may quintuple. – Ryan McCarthy

On to today’s links.

Deals
Bankers and CEOs take note: Most mergers aren’t worth it – Fortune

Must Read
“I just don’t think he likes us” – Obama’s not-so-hot date with Wall St. – NYT

Billionaire Whimsy
Chesapeake CEO was secretly running his own personal, $200 million energy hedge fund – Reuters

The Fed
Bank CEOs have rare face-to-face meeting with governor of NY Fed – American Banker
Fed’s Tarullo Backs SEC Plan On Money Market Funds – WSJ
An endorsement of nominal GDP level targeting could lead to a big shift at the Fed – The Atlantic

Takedowns
Krugman: Rich guy says we should be grateful for his wealth – NYT
How the 1% think about their wealth – Reuters

New Normal
A quarter of millennials don’t have the income to cover the costs of basic needs – Huffington Post
Student loans: A rerun of the payroll tax-cut fight? – WashPo

EU Mess
A sensible alternative to European austerity (that could actually work) –  Vox
A key euro zone manufacturing index just hit a 34-month low – FT
Hugh Hendry is afraid Europe will seize his clients’ valuable assets – Business Insider

Indicators
2012: The year we knew even less about the up-and-down economy – Politico
Private-sector job gains tank in April, as warm weather “payback” comes due – ADP

Tax Arcana
Why the rich are lining up to renounce their U.S. citizenship – Bloomberg
Obama ad focuses squarely on Romney’s Swiss bank account – Huffington Post

Crisis Retro
Lehman emails, just before collapse: “Bros not for sale on the cheap!!!!” – Dealbreaker
From 2008: Korean Development Bank decides not to invest in Lehman – Bloomberg

Economy
Surprise, oil exporters have by far the strongest current account positions – Bonddad
New global database aims to capture who’s buying land where – The Guardian’s Datablog

Alpha
David Einhorn takes cue from Warren Buffett, unrolls self-fulfilling investment strategy – Dealbreaker

Primary Sources
In 2010, summer employment for 16-to-24-year-olds was the lowest since 1948 – Bureau of Labor Statistics

Long Reads
Did ESPN hire an online scammer as a columnist? – Deadspin

Oxpeckers
Businessweek’s bizarre defense of private equity that’s filled with consultant-speak – Reuters
CNBC “freaking out” about ratings for Sorkin and Bartiromo – Daily News

Strange Bloomberg Headlines
“Testosterone Chases Viagra In Libido Race as Doctors Fret” – Bloomberg

#OWS
Leaving Wall Street – n+1

It’s worth reading Reuters’s blockbuster this morning, revealing that Chesapeake Energy CEO Aubrey McClendon was running a secret hedge fund for his own benefit within Chesapeake’s headquarters, in the light of Adam Davidson’s profile of rich-guy apologist extraordinaire Edward Conard.

McClendon, while Chesapeake CEO between 2004 and 2008, spent an enormous amount of time on his pet hedge fund, Heritage Management, which he invested in and co-owned. Chesapeake is an enormous player in the commodity markets, and of course McClendon would have had advance notice of actions Chesapeake was going to take that might well move the markets. He had every opportunity to front-run such actions at Heritage, and conversely of course he also had the ability to block Chesapeake from taking any actions which risked hurting Heritage’s positions.

Whether McClendon actually did any of that is pretty much beside the point: he could have done it, and, as Tulane University’s Elizabeth Nowicki says, “the failure to disclose that you are engaging in this kind of conduct can constitute a securities fraud problem”.

“A reasonable investor would want to know that the CEO could be in a situation where he’s betting against the interests of the company personally,” Nowicki said. “That, it seems to me, is a slam dunk.”

McClendon didn’t merely fail to disclose the existence of Heritage: he downright covered it up.

Today, McClendon leads the three-man team that oversees Chesapeake’s trading in oil and gas for the purposes of hedging, or offsetting the risk of unfavorable price swings. When Reuters asked McClendon last year whether he traded for himself in energy markets, McClendon said: “No, no, no. I’m part of Chesapeake’s hedging committee.”

That’s a classically Clintonian answer: it might be narrowly true, in that Heritage had closed by the time the question was asked, but it’s clearly not the whole truth. In fact, McClendon wasn’t just trading for himself, he was also making money off trading for others, too, charging his friends and associates 2-and-20 for the privilege of being able to invest alongside him.

McClendon, of course, was already a billionaire when he decided that setting up a secret private hedge fund was probably a really good idea. And as such, he was engaging in exactly the kind of behavior that Conard wants to encourage.

“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said…

If a Wall Street trader or a corporate chief executive is filthy rich, Conard says that the merciless process of economic selection has assured that they have somehow benefited society.

Conard takes this reasoning to its logical conclusion: if accumulating obscene quantities of money is good for society, then giving it away must, in fact, be bad for society.

During one conversation, he expressed anger over the praise that Warren Buffett has received for pledging billions of his fortune to charity. It was no sacrifice, Conard argued; Buffett still has plenty left over to lead his normal quality of life. By taking billions out of productive investment, he was depriving the middle class of the potential of its 20-to-1 benefits. If anyone was sacrificing, it was those people. “Quit taking a victory lap,” he said, referring to Buffett. “That money was for the middle class.”

A lot of extremely rich people have persuaded themselves to think this way, even if they’re self-aware enough not to actually come out and shout it from the rooftops. So long as accumulating wealth is a normatively Good Thing, they can even go so far as to take pity on themselves for all the hardships they went through on the way to helping out society so much.

God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.”

Does it ever occur to Conard, I wonder, that there are lots of people in America who work very hard until 11 o’clock or much later — just to be able to feed and house their family? Did he even think, as he was saying this, that he retired at the age of 51, an ultra-wealthy man, and can now spend as much time as he likes watching his children and being with his wife and living a life of serenity and beauty?

I suspect that McClendon doesn’t spend much time on introspection. But insofar as he did, he probably aligned himself pretty closely with Conard’s ideas. He was working hard, he was being successful — these are good things, not something to nitpick or criticize. Somewhere, he probably knew that the hedge fund wouldn’t look good if people found out about it, so he kept it secret. But more broadly, I think the rich really are different from you and me — or, at least, the self-made rich are.

We think of money as a means to an end: we don’t think of making money as being, in and of itself, a good thing. If Reuters were to double my salary tomorrow, that might make me happier, but it wouldn’t confer any obvious benefits on society as a whole. But once you reach the Conard/McClendon stratosphere, your thinking changes. And as Davidson says, there’s every indication that Mitt Romney’s thinking is much closer to Conard’s than it is to those of us in the 99%.

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As European leaders are being criticized for their austere approach to economic recovery, Fed Chairman Ben Bernanke is similarly fending off critics who believe he’s not doing enough to grow the economy. Europe’s obssed with cuts; Bernanke, the argument goes, is obssessed with inflation.

Remember, the Fed has two mandates: to create “stable prices” (largely, keeping inflation in check) and to help maintain “full employment”. Bernanke’s critics, of late, have accused him of worrying far too much about the former.

And at the heart of the debate is whether a tactic long-taboo to central bankers, inflation, is in fact what the U.S. needs to drive unemployment down. (Think of the effect inflated housing prices could have on unemployment.)

During yesterday’s Paul vs. Paul debate on Bloomberg TV, Paul Krugman again argued that the “notion that wages are fixed and any inflation comes at the expense of workers is wrong. Wages tend to rise faster in an economy that’s doing well.” Ron Paul portrayed any inflationary policies as theft from savers.

Pimco’s Bill Gross took the bond owner’s view and warned that an “ocean” of credit created by central bank policies was also adding to investors’ worries about inflation. Hedge fund manager David Einhornexpressed much the same concern. At the Atlantic, Matthew O’Brien called the inflation threat a “boogeyman” and chalked up fears that inflation is really far higher than official statistics indicate to an “understandable mistake. But still a mistake.”

The Fed’s members themselves don’t agree on how much inflation is right for the economy; Bernanke, for his part, shows no signs of changing his position. – Ben Walsh

On to today’s links:

Extremely Hard Jobs
Become the first Goldman Sachs “social media community manager”! – Finextra

Tax Arcana
Stephen King: Please raise my taxes – The Daily Beast

Hackgate
Rupert Murdoch “not a fit person” to lead media empire – The Guardian

Defenestrations
Even Bank of America’s top moneymakers aren’t safe from the latest round of cuts – WSJ

Wonks
Cutting wages doesn’t help in a debt crisis (just ask the UK) – Interfluidity

#OWS
NYPD raids activists’ homes before May Day protests – Gawker
The Guardian’s excellent #MayDay liveblog - Guardian

New Normal
What happens when U.S. consumers can’t refinance anymore? – Bonddad
Obama’s failed to stop the middle class side he blamed on Bush - Bloomberg

Primary Sources
April’s encouraging ISM report – Institute for Supply Management

Oxpeckers
WashPost acquires Digg’s team – but not its technology – All Things D

Awesome
Thinking in a foreign language leads to more rational decisions – Wired

Financial Arcana
Treasury is considering floating notes – WSJ

Felix
The multimillionaire men of Lehman – Reuters

It doesn’t surprise me in the slightest that the Monday-night entertainment at the Milken Global Conference this year was Lionel Richie. At 62 years old, Richie is pretty much the median age of conference attendees, and is a perfect calibration of the familiar and the inoffensive, combined with a frisson of star power.

There’s another artist with much the same combination of vintage and talent, who’s also a staple on the conference circuit: Kenny Loggins. And I’ve heard that each of them has quietly become one of the most financially successful touring artists the world has ever known.

I’d love to know if there’s any public record of how much Richie and Loggins tour, and/or how much they get paid for a typical gig. As I understand it, both of them are consummate professionals when it comes to entertaining crowds of men in suits, and they pretty much exclusively confine themselves to events where they’re paid by a single organizer, rather than having to go to the trouble and uncertainty of selling tickets to the public. The Milken event was atypical, I think: Loggins tends to do more of the corporate-conference events, while Richie seems to have unrivalled numbers of invitations to perform at the parties of the international ultra-wealthy.

Either way, I’m told that both of them are bringing in absolutely monster incomes, while staying far from the limelight. One of the reasons that they can charge a lot of money for these gigs is the illusion of exclusivity — the idea that a Lionel Richie gig or a Kenny Loggins gig is a rare and special thing, from someone who doesn’t go touring any more. Even if they really do still tour — just not in public.

I’d also love to know, in the context of the Milken Institute in particular, whether Richie got paid for this particular gig, and if so, how much. The Institute is, after all, a registered non-profit organization, which solicits donations from members of the public to “improve the lives and economic conditions of people in the U.S. and around the world”. Does it count if they’re improving the economic condition of Lionel Richie’s bank account?

At the end of Seth Stevenson’s glowing profile of Patagonia founder Yvon Chouinard, he mentions the way that Chouinard recently converted his company to a B-corp:

Registering as a “benefit corporation” lets a firm declare—in its articles of incorporation—that the fiduciary duty of its executives includes “consideration of the interests of workers, community and the environment,” and not just the bottom line.

Chouinard marched into state offices on the morning of January 3, 2012, to make Patagonia the very first company to register as a benefit corporation in California. It remains the most prominent company nationwide to have registered thus far. For Chouinard, the value of this is less about the present than the future. He can do whatever he wants at Patagonia right now, with no threat of shareholders revolting if he sacrifices a bit of profit in the name of menschy communitarianism. He owns the place in full, for as long as he’s alive. But he’s cagey about succession, and it’s clear what he fears: He never wants Patagonia to go public, or to lever itself up in search of rapid growth, as it mistakenly did before. He’s convinced that becoming a benefit corporation will help prevent that from ever happening.

I spent a bit of time researching B-corps when I was writing my Wired story on the problem with IPOs, and I think that B-corps are actually much more interesting than Stevenson is giving them credit for. The whole point of a B-corp, as I see it, is that you can go public, or lever yourself up in search of rapid growth, or give your employees lucrative stock options — you can generally behave just like all those money-chomping red-blooded capitalists, while also giving yourself a lot of freedom to do things like save the planet and ignore pesky shareholders agitating for explosive and infinite growth.

B-corps—Maryland was the first to charter them in 2010—can still have public shareholders, dividends, stock offerings, and all the other tools in the modern financial arsenal. But unlike other public companies, whose sole legal duty is to maximize profits for shareholders, executives at B-corps are also required to consider nonfinancial interests when they make decisions. Indeed, the company has to create a material positive impact on society and the environment.

That has the potential to rewire one of the most dangerous things about being a public company today: the requirement to keep growing, no matter what. B-corps can and will be listed on stock exchanges, just like any other public company. And there is no reason that they shouldn’t perform like normal shares. But investors and employees can take pride in the fact that their company is not just concerned with short-term financial gain. Best of all, the pressure to grow at all costs dissipates, and it becomes a lot harder for angry or litigious shareholders to agitate for changes just because they’re unhappy about the stock price.

There will undoubtedly be a discount applied to any B-corp looking to go public — its valuation won’t be as high as if it were a conventional company. But once it has gone public, there’s no reason its share price shouldn’t grow just as fast as any other company. If the discount stays constant, then the return to shareholders is exactly the same as it would have been at a full valuation. And if the “menschy communitarianism” of the company, in Stevenson’s words, actually ends up helping the company’s bottom line, then the discount might well shrink, thereby boosting total shareholder returns.

If Chouinard “never wants Patagonia to go public”, then, registering as a B-corp is not going to help him. But I suspect the idea here is that by registering as a B-corp, Chouinard is creating a company which can go public without losing its soul. And, without resorting to non-voting share classes and the like.

It was a little bit uncomfortable, watching Jason Tanz talk to Kickstarter co-founder Yancey Strickler at today’s Wired conference. Jason, who’s my editor at Wired when I write for them, tried in a couple of ways to ask the kind of questions I’ve been raising about the company. And Strickler tried in a couple of ways to answer them. But the result was ultimately fuzzy and unsatisfying; it’s pretty obvious that Kickstarter itself, which just celebrated its third birthday, hasn’t come close to working out how and even whether it’s going to resolve these issues.

Strickler did cite with approval the latest grouchy email from Bob Lefsetz, who says that “Musicians are using Kickstarter the wrong way. They’re focusing on themselves instead of their fans.” He’s also a big fan of Amanda Palmer, whose Kickstarter campaign for her next album managed to raise $250,000 in its first day, with the rest of the month to go. Lefsetz’s big insight is that while Kickstarter was originally embraced by the undiscovered and impecunious, its greatest potential, in the music industry, is actually with established acts who already have a large following.

Palmer is a great example, with her 550,000 Twitter followers, her substantial blog and Facebook following, and in general the degree to which her fans are devoted to her. She’s also a music-industry veteran, who’s walking into this album project with her eyes wide open. She has already recorded the album, and is telling her funders that the recording costs, of about $110,000, represent only about 17% of her total album-related expenses of $650,000 or so.

You can see why Strickler loves Palmer: she’s doing it right. She has a business plan, she has multiple income and funding streams (including an innovative idea for paying “creative interest” on loans of $25,000 to $50,000), and the success of her previous Kickstarter projects shows that she knows exactly what’s involved in fulfilling and shipping everything that she promises on the site. Plus, she’s exactly the kind of highly creative individual Kickstarter was built for.

Meanwhile, Strickler is clearly much more conflicted about the way that his site’s most high-profile projects — the latest being the ridiculous Pebble watch — are turning the site into some kind of online shopping platform. He came onstage directly after Marc Andreessen, who was talking about how Kickstarter was something of a Plan B for Pebble, after they had failed to raise venture funding. Now that the company has shown that there’s more than $7 million of real demand out there for its project, however, that “derisks the company”, says Andreessen, and makes it more likely that they can raise VC funds.

This didn’t sit particularly comfortably with Strickler. “Kickstarter is for creative projects,” he said. “We prefer creative expression to maximization.” More generally, he said that “we don’t allow corporations to use Kickstarter”, and talked of the “danger” that funders will view a project as a commercial transaction — spending money on a thing — as opposed to a funding transaction. “People need to have the right expectations going in,” he said.

But, clearly, they don’t. I feel entirely comfortable in saying that the 51,700 “backers” of the Pebble watch do not, as a rule, consider themselves to be funding a project, so much as they consider themselves to be buying a watch. (That’s especially true of the 15 people who have bought the “MEGA DISTRIBUTOR PACK” of 100 watches for $10,000.) And I don’t see Kickstarter doing anything, really, to reset the expectations of the people who view the site as a place to buy stuff, rather than a place to fund projects.

One of the reasons is that Kickstarter has grown and evolved in ways that the founders didn’t necessarily anticipate, and they don’t want to put themselves in a gatekeeper role telling people what they can or can’t do. Strickler was adamant that Kickstarter itself doesn’t investigate projects, beyond ensuring that they fit the basic ground rules: that you’re not a charity, you’re not raising equity for a business, that kind of thing. “56% of projects don’t meet their goal,” said Strickler. “That’s policing. We’re relying on the crowd to do that, and we don’t want to become more involved in that. ”

Except, as Kickstarter grows, it becomes less and less tenable for Kickstarter to retain that attitude. Yes, there are dodgy projects which don’t get funded. Call those the true negatives. There are also great projects which do get funded — the true positives. Put them together, and you have a very successful ecosystem. The ecosystem can also live quite happily with the false negatives, great projects which for whatever reason don’t manage to reach their funding goals. That’s the beauty of Kickstarter’s no-harm-no-foul system: if you don’t meet your goal, then no one is out of pocket.

The problem is with the false positives — dodgy projects which do get funded. Statistically speaking, these things are certain to exist. Jason asked Strickler about some hypothetical crook who looked at the millions of dollars being raised by the likes of Pebble, and hatched a scheme to simply defraud a lot of people out of their money, by putting up a glossy video for some sexy gadget, and then simply absconding with the money. How is Kickstarter addressing that risk? It seems, listening to Strickler, that the short answer is that it isn’t.

That said, Strickler did make two countervailing points. Firstly, for all the publicity that they get, the Kickstarter-as-QVC projects only account for 5% of the site’s projects, and no more than 15% of its total revenues. And secondly, in a world where we’re used to being able to click a button on Amazon and have something automagically delivered to our door a day or two later, Kickstarter is helping people rediscover the process of manufacturing and fulfillment, through Kickstarter updates and simply by waiting some unknown amount of time for their stuff to finally arrive.

“My concern is for backers to understand that they’re likely buying something that doesn’t exist,” said Strickler. “Part of that is really exciting: you get to see how things get made, and you get to learn.”

I just hope that lots of people don’t end up learning these lessons the hard way. And that Strickler puts some serious effort into educating the 2 million people who have funded Kickstarter projects, and ensuring they understand exactly what they’re doing.

On Friday, the LA Times published the of pay for Lehman Brothers’ top 50 employees in 2007.  That’s employees as in managing directors and below: pay for “named corporate officers” like Dick Fuld was publicly disclosed. This is how much you make if you’re not running the company, but just working there and making lots of money.

While LAT’s originals contain lots of interesting information like year-over-year comparisons, they’re not easy to read, and not searchable. So, as a public service, Ben Walsh put together the list in searchable form.

It’s worth noting a bunch of people with incredibly vague job titles like “MD, Executive Administration” (Benoit Savoret, $18 million in 2007.) These are managers — and pretty important ones, judging by their paychecks — yet not important enough that their pay needs to be disclosed to the SEC or to investors. Collectively, they’re more perpetrators than victims when it comes to the financial crisis: they can all live quite happily for the rest of their lives on what they made in that one single year.

To get into the Lehman Top 50 in 2007, you needed to be earning more than $8.2 million a year — that’s $158,000 a week. One man earned $9 million, six men earned $10 million, and four men earned $11 million, with no one earning anything in between: Lehman clearly found it easiest to round up or down to the nearest million. You know, as you do.

Of course, there’s nothing special about Lehman, in terms of pay. If we saw the Top 50 list for a really big investment bank, like JP Morgan or Goldman Sachs, it would have higher salaries and a higher cut-off, almost certainly north of $10 million.

The one thing which is most startling about this list is the number of women on it: exactly zero. (Update: It seems I missed one, Ros L’Esperance, #33.) One can’t help but suspect that the all-male culture at the upper reaches of Lehman was a corrosive and damaging thing, which in some way helped lead to the bank’s demise. Erin Callan, in 2007, was already a named corporate officer at Lehman, so she doesn’t make this list. (She was named CFO in September 2007.) From the outside, it looked as though Lehman had at least one woman in a senior leadership position. But looking at this list, it’s clear just how much of an exception Callan was.

Callan, it turns out, was the highly visible lone woman at Lehman, competing with and against nothing but men. I wonder what she thought, at the time, looking down this list, and seeing not but a single woman on it. At Lehman, it seems, in Dick Fuld’s immortal words, “the bros always wins”.

1. Millard, Robert B: $51,347,377 (MD, Global Trading Strategies)
2. Schwartz, Marvin C: $31,141,337 (MD, Asset Management)
3. Hoffman, Jonathan: $30,850,000 (MD, Trading – Global Rates)
4. Cassarini, John: $18,500,000 (SVP, Trading – US Proprietary)
5. Klein, Henry: $18,200,000 (MD, Global Trading Strategies)
6. Penkett, Paul Alexis: $18,000,000 (SVP Trading – Asia Proprietary)
7. Savoret, Benoit C: $18,000,000 (MD, Executive Administration)
8. Walsh, Mark A: $17,500,000 (MD, Fixed Income Administration)
9. Kirk, Alex: $17,000,000 (MD, Fixed Income Administration)
10. Glasebrook II, Richard J: $16,757,246 (MD, Asset Management)
11. Shafiroff, Martin: $16,495,404 (MD, Private Investment Management)
12. Bouzouba, Rachid: $15,000,000 (MD, Equities Administration)
13. Felder, Eric J: $15,000,000 (MD, Trading – High Grade)
14. Fee, Hyung S: $15,000,000 (MD, Fixed Income Administration)
15. Taussig, Andrew R: $14,085,000 (MD,  Retail/Transportation Investment Banking)
16. Donini, Gerald A: $14,000,000 (MD, Equites Administration)
17. Whalen, Patrick J: $13,005,000 MD, Equites Administration)
18. Kramer, Jeremy R: $12,875,403 (MD, Asset Management)
19. Amin, Kaushik: $12,500,000 (MD, Fixed Income Administration)
20. Fuchs, Benjamin A: $12,500,000 (MD, Global Opportunities Group)
21. Morton, Andrew: $12,500,000 (MD, Fixed Income Administration)
22. Mumphrey, Thomas P: $12,500,000 (MD, Fixed Income Administration)
23. Banchetti, Riccardo: $12,000,000 (MD, Executive Administration)
24. Nagpal, Ajay: $12,000,000 (MD, Equities Administration)
25. Thorkeisson, Sigurbjorn: $12,000,000 (MD, Equities Administration)
26. Weiner, David: $11,922,906 (MD, Asset Management)
27. Duramel, Olivier: $11,700,000 (SVP, Quants – US Systemic Trading)
28. Schneider, Gregoire: $11,700,000 (SVP, Quants – US Systemic Trading)
29. Shafir, Mark G: $11,500,000 (MD, Global M&A Investment Banking)
30. Weiss, Jeffrey L: $11,500,000 (MD, Financial Services Investment Banking)
31. Jotwani, Tarun: $11,250,000 (MD, Executive Administration)
32. Wickham, John R: $11,250,000  (MD, Equities Administration)
33. L’Esperance, Ros: $11,000,000 (MD, Financial Sponsors Investment Banking)
34. Parkor, Paul G: $11,000,000 (MD, Global M&A Investment Banking)
35. Rieder, Rick: $11,000,000 (MD, Global Principal Strategies)
36. Wieseneck, Larry: $11,000,000 (MD, Global Finance Administration)
37. Dauhajre, Munir: $10,000,000 (MD, Equities Administration)
38. Gatto, Joseph D: $10,000,000 (MD, Global M&A Investment Banking)
39. Higgins, Kieran Noel: $10,000,000 (MD, Trading – Global Rates)
40. Hoffmeister, Perry C: $10,000,000 (MD, Investment Banking Administration)
41. Meissner, Christian Andrea: $10,000,000 (MD, Investment Banking Administration)
42. Psaki, Jeffrey: $10,000,000 (SVP, Trading – High Grade)
43. Pearson, Thomas M: $9,000,000 (MD, Origination – Real Estate)
44. Ramallo, Henry: $8,579,023 (MD, Asset Management)
45. Assi, Georges: $8,500,000 (MD, Tradlng – Collaterallzed Debt)
46. Corcoran, Joseph: $8,500,000 (MD, Equites Administration)
47. Jordan, Nicholas: $8,500,000 (MD, Equities Administration)
48. Bacha, Mohamed-Ali: $8,250,000 (SVP, Trading – Volatility)
49. Mattu, Ravi K: $8,250,000 (MD, Fixed Income Administration)
50. Brewer, Paul E: $8,250,000 (MD, Global Trading Strategies)
51. Tarnow, Joshua R: $8,200,000 (MD, Global Trading Strategies)

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Less than a week ago, we suggested that austerity, Europe’s great experiment in cutting its way out of an economic slump, was coming to an end. Now every bit of economic data, including today’s news that Spain, like the UK, is officially back in recession, seems to come with a gigantic Scarlet A across it.

“The tide appears to be turning” on fiscal austerity, Reuters declares, as European Central Bank President Mario Draghi has called for a “growth compact” to complement the last two years of mass budget cutbacks. The ECB’s internal markets chief agrees and, in characteristically European fashion, is calling for a plan-to-make-a-plan for economic growth.

There’s a flood of anti-austerity op-eds. Larry Summers writes that Europe’s maladies were misdiagnosed: “High deficits are much more a symptom than a cause of their problems,” he argues – and calls for the world to make EU aid contingent on a plan for growth. Mohamed El-Erian slams austerity in Spain, and calls for a focus on both “the deficit containment (numerator) and growth (denominator).” Christina Romer, former top economic adviser to President Obama, argues for a “backloaded consolidation” version of budget cuts in Europe; essentially, spending cuts and tax increases that are slowly implemented as economic growth recovers.

Of course, all of this anti-austerity talk comes much too late. But there’s some reason for optimism: The European Investment Bank may get more funds for real, growth-driving investments. Marc Chandler lays out the early speculation, noting that EIB funds could rise to $264 billion, which could go to infrastructure, technology and renewable energy.

European spending of any kind is politically fraught, and the EIB’s is definitely not a quick fix. Compare, as Reuters did, the EIB’s reported size with the 1 trillion euros created by the ECB to prop up the economy. These are baby steps during a crisis, in other words.

And on to today’s links (scroll down for readers’ suggestions for Occupy Wall Street’s future):

Tax Arcana
How Apple sidesteps billions in taxes – NYT

#OWS
Occupy Wall Street now “fighting the man through the Byzantine regulatory process” – WashPost

TBTF
Your latest highly levered, possibly Too Big to Fail nonbank entity: Mortgage REITs – Bloomberg

New Normal
Welcome to housing’s “prolonged bottom” – WSJ

Crisis Retro
Dick Fuld, in an email: “The Bros Always Wins” – Dealbreaker

Welcome to Adulthood
Congress is rethinking the idea that student debt should follow you to the grave – WSJ
Dealing with student loans and a mortgage: It really, really sucks – NYT

EU Mess
Spain is the latest European country to fall back into recession – Macroscope
Spain is the new Greece, except possibly worse – EconoMonitor

Deals
Microsoft buys a 17.6% stake in Barnes & Noble’s nook unit – NYT
Microsoft enters the e-book wars – Felix

Charts
Our depressed fiscal situation in 4 charts – Krugman
2030: The world in 5 graphs – Finance Addict

Startups
The “no-revenue formula” for startups is a real, proven strategy that works (for investors) – Nick Bilton
Yes, there’s a tech bubble, but it’s not that simple – Chris Dixon

Takedowns
The Economist‘s exquisitely refined example of “globollocks” – Crooked Timber

Now He Tells Us
Kashkari: America needs to quickly figure out how to help homeowners – WashPost

Legalese
Madoff trustee’s legal fees are dwarfing the amount he’s recovered for Madoff Victims – Bloomberg

Financial Arcana
Models don’t cause crises, people do. And models help – FT Alphaville

Shocking
Romney fundraiser a large crowd of “older white people, mostly men” – The Daily Beast

Your Daily Outrage
NYC considering banning Happy Hour, for some reason – NY Post

Old Normal
A map of LA when streetcars, not freeways, dominated – Flickr

#OWS’s Second Act: Your reactions

Last Thursday, ahead of mass protests planned in hundreds cities on May 1, we asked Counterparties readers to tell us the one issue the Occupy Wall Street movement should hang its hat on. We’ve included the best responses below; they’ve been edited for length. We’ll be sending along books from Felix’s desk to the winners!

It seems pretty clear to me that Occupy should, at least for the moment, sharply focus on student debt and higher education financing. The iron is hot, with the issue in front of Congress right now, so there is an opportunity to push through a substantive political victory that Occupy never quite had during the first go-round…

That victory would also come on an issue that is acutely important to the constituency the movement is clearly going after – if you think back to a year ago, the “stereotypical” protestor was a recent graduate having trouble finding work, and weighed down by immense educational debts… By starting off the season with an issue of much more direct relevance to its strongest constituency, OWS can 1) make a difference, 2) demonstrate its commitment to effecting actual policy change, and 3) in the process, draw the people and positive media coverage that will give it serious political momentum moving forward.

I don’t even like the Occupy, but I think it’s plainly obvious what they need to do.

Roger writes that it’s still too early for Occupy to rally around a single cause:

OWS and Tea Party together have public support approaching 75%, though neither alone has the power to produce anything meaningful. The forces of the status quo will continue to prevail unless and until both movements unite on a common theme. The movements are so ideologically different that their only area of common ground lies in opposition to the status quo. “Opposition” must, at this time, be the one and only objective of all insurgents. We’ll deal with what replaces the status quo AFTER the status quo has been displaced from power, not before then.

The one single issue that the OWS movement should concentrate on is very simple, but at the same time controversial, and that is the idea of debt relief. By removing at least a large percentage of the outstanding personal debt pile, OWS would be able to have an issue that is controversial for most media outlets and a significant amount of the population, but at the same time a serious proposal that resonates with a large minority of the population and actually works to decrease the last decades’ increases in inequality.

Eli Broad’s new book comes out tomorrow, and the cover alone speaks volumes. The title is “The Art of Being Unreasonable: Lessons in Unconventional Thinking”. And the way that Broad has decided to illustrate how unreasonable and unconventional he is? He’s posing next to Jeff Koons’s Rabbit.

Now I happen to be a fan of Rabbit: I think it’s a genuinely excellent and important piece of 20th Century art. I’m also not alone in that view. Ingrid Sischy explained it well, back in 2001, writing of the “Neo-Geo” show where it was first exhibited:

The piece that grabbed the spotlight was Rabbit, his flawless stainless-steel casting of an inflatable bunny. It was a 41-inch-high art-bomb that thumbed its nose at the aesthetics of high art and yet at the same time embraced them, a fusion of Pop and Brancusi. With its wit, its physical simplicity, and its characteristically Koonsian reference to sexual symbols and childhood pleasures, Rabbit has become one of the artist’s most famous and enduring icons…

Kurt Varnedoe, today the chief curator of painting and sculpture at the Museum of Modern Art, is one of many viewers who stayed put when he saw that silver bunny. He recalls, “There are just a few occasions in my art experience in New York where I’ve been sort of knocked dead by an object instantly. This piece was just riveting. You wanted to laugh, you were shocked, you were planted to the floor. I was galvanized by the object. It has such an amazing physical presence… ‘Uncanny’ is the word that comes to mind. There were so many different things going on at once in the piece. It was hilarious, it was smart, and it was chilling… It had that kind of Utopian high-gloss modern clarity to it.”

In 2001, Sischy estimated Rabbit’s value at somewhere in the $2-3 million range; today, it’s probably closer to $100 million. (One Rabbit reportedly sold for $80 million back in 2008.)

Rabbit exists in an edition of three, plus one artist’s proof; Broad owns the artist’s proof, which he bought from Koons in the mid-1990s when the artist needed money to pay the enormous fabrication bills for his Celebration series. Of the other three, two are promised to museums — the Museum of Contemporary Art in Chicago, and MoMA in New York. It’s almost the perfect artwork for a financially-minded collector. Because it’s part of an edition, it’s possible for the piece to be owned by MoMA and by Eli Broad at the same time. Because it’s owned by MoMA, it has the best possible institutional legitimacy. And because there’s a “spare” privately-owned Rabbit out there somewhere, Broad can mark his Rabbit to a private market in the piece.

In the book, Broad says that “people often think it’s strange how briskly I go through museums”: he explains that “I’m there to learn and apply my knowledge to our collections. As much as I would like to stay, I have to move on.” Basically, the job of a museum, in Broad’s view, is to ratify Broad’s own collection. In that sense it’s very different from art fairs, where he can go shopping and build his collection: “While I may dash through a museum,” he writes, “I do give myself time to take in artists’ studios and art fairs in Miami, London, Venice, and Basel.”

All of which is to say that Broad’s Rabbit is an example of unconventional thinking in much the same way as a Saudi oil well is an example of an unconventional energy source. Broad’s famous for buying most of his collection from a single gallerist, Larry Gagosian; the piece he chooses to pose with for the cover of his book is the most valuable and recognizable object he owns. It’s a piece which has been ratified by both museums and the market; a piece which is about as mainstream as contemporary art gets.

The cover of Broad’s book does not depict a man who’s secure in his own taste. Instead, it shows a man who collects trophies and prowls museums looking to make sure that he’s collecting the right ones. Yes, Broad’s collection is extremely valuable. But there’s nothing unreasonable about it.

You think markets are efficient? Check this out: Barnes & Noble stock opened 2012 at $14.75 per share and falling fast; by January 5, the opening price was just $9.50. At that price, the entire company was worth just $550 million, and there was a very real fear that the entire company could go to zero, following in the footsteps of Blockbuster and other real-world retailers selling content more easily bought online.

Today, of course, all that has changed. Barnes & Noble has sold a 17.6% stake in its digital and college businesses to Microsoft, for $300 million — a deal which values B&N’s remaining 82.4% stake at $1.4 billion. And while the $300 million is staying in the new joint venture and therefore not available to help the bookstore chain with cashflow issues, the news does mean that Barnes & Noble won’t need to constantly find enormous amounts of money to keep up in the arms race with Amazon. That’s largely Microsoft’s job, now.

This deal is a bit like one of those high-profile investments by Warren Buffett in a distressed company: a vote of confidence by someone powerful enough to be able to fund the struggling firm through its troubles. Except in this case, the Microsoft investment is much bigger than that, since it comes with deep integration into the Windows 8 operating system. Barnes & Noble no longer needs to sell Nooks, or persuade people to download the Nook app on their iPad: everybody with a Windows 8 device will have the Nook reader built-in.

The e-book market is still young; if Amazon continues to be seen as the enemy, there’s no reason in theory why the Nook shouldn’t become just as popular, if not more so. It’s true that you can’t read Kindle books on your Nook, or vice versa, but over the long term, we’re not going to be buying Kindles or Nooks to read books. Just as people stopped buying cameras because they’re now just part of their phones, eventually people will just read books on their mobile device, whether it’s running Windows or iOS or something else. And that puts Amazon at a disadvantage: the Windows/Nook and iOS/iBook teams will naturally have much tighter integration between bookstore and operating system than anything Amazon can offer.

All of which has lit a real fire under the Barnes & Noble stock price, which opened at $25.79 this morning and looks as though it’s going to close somewhere between $20 and $25 per share. That’s an increase of much more than $300 million in market capitalization, and there’s upside, too: the valuation of the parent is now equal to the value of its stake in the subsidiary. So if the subsidiary rises in value, or if the rest of the company is worth anything at all, then the shares can rise further from here.

The one thing you can certainly expect, though, is volatility. Because Barnes & Noble is no ordinary stock. There are 60.2 million shares outstanding, but of that total the free float — the shares freely traded on various stock exchanges — is just 26.82 million. Meanwhile, at last count, the short interest in Barnes & Noble — the number of shares which had been borrowed by people selling them in the expectation that they would fall — was a whopping 19 million shares.

This, ladies and gentlemen, is what is commonly known as a short squeeze. All those shorts have lost a fortune today, and they’re going to have to cover sooner rather than later, driving the price up artificially. So at least for the next few days, it’s probably worth taking any market valuation for Barnes & Noble with a bit of a pinch of salt: technical factors are likely to overwhelm fundamentals until the shorts have retreated, licking their wounds.

After that, however, we finally have a real three-way fight on our hands in the e-book space, between three giants of tech: Apple, Amazon, and Microsoft. And that can only be good for consumers.

The final hour of Frontline’s Money, Power and Wall Street documentary will air on Tuesday; I’ll be participating in an online chat about the program with producers Martin Smith and Marcela Gaviria on Thursday at 1pm ET. I watched a preview this weekend, while also reading the World Economic Forum’s 92-page report on “Rethinking Financial Innovation”.

The two could hardly be more different. Frontline concentrates on international finance’s discontents, most of whom are convinced that no matter how assiduous financial-market regulation, the big banks will always find a way to extract enormous rents for themselves. The WEF, by contrast, is convinced that financial innovation is nearly always a good thing, and that a few tweaks to internal risk controls, and maybe a high-level council of graybeards thinking deeply about systemic risk, should suffice to protect us all from any downside it might have.

The WEF report is not an easy read. Literally: it’s printed in a light-grey sans-serif font on a white background. And for anybody hoping for an indication that the highest levels of the financial-services industry are taking the problems with financial innovation seriously, it’s particularly depressing. Taken as a whole, the report is a full-throated defense of financial innovation, says that substantially all financial innovations are good things, and downplays all possible downsides to the maximum possible extent.

The first words of the executive summary are “Financial innovation has a long history of success” — and that very much sets the tone for the rest of the report. Weirdly, the success of financial innovation is invariably asserted, rather than argued. For instance, on the left you can see the report’s list of financial innovations since the debit card. “Many of the historical examples of financial innovation listed in the timeline have at some point been misused and misapplied by market participants, and have contributed to significant financial system disruptions,” says the report. “Over time, however, most have been accepted as beneficial.” The passive voice is telling: nowhere are we informed who is accepting these things as beneficial, or what criteria they may be using.

Looking at this list, I can see three unambiguously good innovations: point-of-sale terminals, ACH, and CHIPS. All of them represent evolutionary improvements in the banking system’s payments and clearing architecture. With the rest, I certainly see a lot of innovations which resulted in banks and other private-sector finance players making lots of money. But was the publication of the Black-Scholes equation really a great thing for society as a whole? Are we better off now that we’ve moved from defined-benefit to defined-contribution pensions? Or, to take a slightly earlier innovation which the report dates to 1968, did the originate-to-distribute securitization model really help society as a whole?

It’s disappointing that over the course of its 92 pages, the WEF report never attempts to answer these questions. Instead, we just get lots of unsupported assertion, like the statement on page 40 that “most financial institution failures and insolvencies are not linked to financial innovations”. Well, I’m glad that’s cleared up. Eventually, we end up with a series of recommendations for regulators. The very first one? “Acknowledge the importance of innovation and its role in a competitive, free-market structure.”

From the point of view of someone who has been writing about the failures of various financial innovations for the past four years, there was very little in the Frontline documentary which was new to me. I would hope, similarly, that the documentary would also come as little surprise to any of the financial-services industry’s leaders. Reading this WEF report, however, I’m forced to conclude that they don’t actually have a clue how bad the 2008 crisis was; how closely the devastating global fractures coincided with various financial innovations; and how much it’s necessary to revisit all our priors in the wake of the worst financial crisis since the Great Depression.

The fact is that there’s almost nothing in the WEF report — beyond the simple fact of its existence — which demonstrates that anything at all has changed since 2008. The world’s most important bankers are desperately trying to convince themselves that they’re wonderful people doing God’s work, and that somehow the financial crisis was just one of those unpleasant hiccups along the way. Which it was, for the people who still have jobs at the top of the financial sector, paying millions of dollars a year.

All of which is to say that the WEF report suffers deeply from an unreliable-narrator problem: sometimes the people closest to an issue are the people who are the least trustworthy on that subject. The Frontline documentary might not talk about how it’s trying to “encourage dialogue among stakeholders” by providing “a taxonomy of potential negative outcomes”: that would be Swiss Re’s Stefan Lippe, a chief architect of the WEF report. But if you want to see what kind of damage the financial sector can wreak, you’ll be much better off with the TV show than with the WEF.