The #GrieFault trade

Why Argentina’s bonds might be worth even more in default

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The “Of Course” Edition

Slate Money on the state of business journalism, a hedge-fund billionaire’s battle against Herbalife, and the corporate income tax.

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The Many Merchants of Death Edition

Slate Money on a big bank’s big settlement, a big merger in “Big Tobacco,” and the continuing saga of the world’s most expensive fighter plane.

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The Cupcake Indicator

Slate Money on endings: quantitative easing, the American Apparel leadership, and big cupcake.

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Slate Money: The Monetizing Others Episode

Slate Money on New York’s secretive real estate, big data in health care, and GM’s many recalls

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The stock market, in six charts

Lessons from Yahoo’s chart buttons

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Jeff Koons: a master innovator turning money into art

Jeff Koons and the art of financial innovation

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Not all winning bets are smart

Don’t speculate with your home

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From Wall Street Dark Pools to Puerto Rican Swimming Pools

Slate Money on Aereo’s Supreme Court loss, and rich people flocking to Puerto Rico

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Aereo could have saved the airwaves from the broadcasters’ ransom

Spectrum has been gifted to media groups eager to cash in on what is free, writes Felix Salmon

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Hedge Fund vs. Sovereign

How U.S. Courts Are Upending International Finance

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Why Argentina Could Default … Again

Slate Money on Amazon’s new phone, the effect of the crisis in Iraq on the oil market, and Argentina’s loss at the Supreme Court

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Spinoffs, Write-downs, and Techie Taxis

Slate Money on Uber vs. Europe, Time Warner’s magazine spinoff, and Larry Summers’ favorite book

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BuzzFeed’s Jonah Peretti Goes Long

The media mogul (twice over) on being both contagious and sticky

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Lessons from a $110 million penthouse

The physical manifestation of r>g

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How well uberX pays, part 2

Maybe not quite as well as Uber would have you think

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Wall Street’s Toughest Judge

Slate Money on Judge Jed Rakoff, the European Central Bank, and the saga of billionaire Steven A. Cohen

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The number 2,000

Economic lessons from Brazil

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America prosecutes its interests and persecutes BNP

What we are seeing is unapologetic American exceptionalism, manifesting as extraterritorial powermongering

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One question all managers should ask themselves about pay

What’s the ratio between my pay and that of my highest-paid employee?

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The economics of “everyone’s private driver”

What happens when cab drivers stop being employees and start being sole proprietors

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Where is Felix

I left Reuters, and I’m not sure when or whether I’m going to have any kind of regular blog at Fusion. And in my new promiscuous life, it’s not going to be very easy to keep track of everything I’m doing. Which means that there’s now a job for to do! I’ll probably still post things here occasionally, but I’m also going to use this blog to link to everything else I’m doing at other places. Which has the benefit that this blog’s RSS feed will also serve as an RSS feed for everything I’m doing.

So! In recent weeks, I’ve written these pieces:

I’ve also started my weekly podcast for Slate. So far there have been four episodes:

  • The Debut of Slate Money: On the upcoming IPO of Chinese Web giant Alibaba, the battle between Sotheby’s auction house and its Dan Loeb, and Seattle’s possible move to a $15 minimum wage.
  • The Unbearable Modesty of Tim Geithner: On Tim Geithner’s Stress Test, why Christine Lagarde isn’t speaking at Smith College, and how student debt impacts the housing market.
  • Ben Bernanke’s Big Payday: On Credit Suisse’s guilty plea, how reparations to descendants of slaves might work, and whether it’s appropriate for former Fed chairman Ben Bernanke to accept six-figure speaking fees.
  • Money and the Media: On Apple’s purchase of Beats, Amazon’s fight with Hachette, and Thomas Piketty’s defense of his data.

Do subscribe to the podcast directly, if you’re into such things, and leave a rating on iTunes. It’s a great way to help people discover it. Thanks!

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James Ball on masturbatory journalism (annotated)

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Scoops: When journalists masturbate

This quote is beginning to get some press attention, so I ought to correct the record: I said “masturbatory”, not “masturbating”. Glad that’s cleared up.

In fact, the full quote was captured by the FT’s John Burn-Murdoch: “Breaking news is the most masturbatory thing journalists do. The reader couldn’t give a flying fuck who broke it.”

A bit of context, here: I was giving a talk about wonk journalism at the International Journalism Festival in Perugia, and in the Q&A I was asked about whether there was a problem with the fact that explanatory journalism doesn’t break news. In particular, I was asked about this quote, from James Ball, at the Guardian, writing about Vox and FiveThirtyEight:

Neither site truly aims to break news on the areas they cover, and therein lies a problem: are readers meant to visit their favorite “regular” news sites, then hop by and see if the newcomers have anything to add (or debunk)? Neither FiveThirtyEight nor Vox has offered quite enough (yet) on any of their specialities to become the first stop.

This, I think, is doubly silly. For one thing, both Vox and FiveThirtyEight are brand new: give them a little bit of time to start getting the breadth and depth they aspire to!

But more to the point, readers don’t care who broke the news: only journalists care about that. If I report something and then you report the same thing five minutes later, then by the laws of the journalistic honor code, you’re supposed to credit me in your story.

There’s one exception to this rule: at newswires, it theoretically matters who gets news first, because news can move markets. (In practice, however, even newswire subscribers aren’t generally fast enough to be able to trade on news before the markets have moved, so it doesn’t really make a huge amount of difference whether one wire gets the news a fraction of a second before the other guy.)

Outside newswires, on the other hand, chasing after scoops is silly — especially in the 99% of cases where the news is certain to come out soon enough anyway. Many highly-respected newscasts and magazines rarely or never break news; conversely, many low-quality, high-velocity websites are constantly churning out microscoops of zero importance. It seems self-evident to me that all news organizations should decide whether or not to publish information based on the inherent quality of the content in question, and the degree to which that information serves the publication’s readers. Instead, far too many news organizations make their publication decisions based on what other news organizations have already published.

Journalists, of course, spend a huge amount of time looking at their rivals’ content. And in their solipsistic way, they generally assume that if they’ve seen a certain story elsewhere, then their readers will have seen that story too. Every journalist in America can tell you about a project they were working on which was spiked when their editor saw something vaguely similar elsewhere — even when the overlap between the two publications’ readerships was roughly zero.

All of which is to say that when journalists start caring about scoops and exclusives, that’s a clear sign that they’re publishing mainly for the benefit of other journalists, rather than for their readers. Take the news, for instance, that I was joining Fusion. That news was published in the New York Times — both online and in print. The story, by Ravi Somaiya, was a great one.  But because of scoop culture, it only appeared in the NYT because it appeared first in the NYT: Fusion gave Ravi the exclusive. My own story appeared a few minutes later, which is fine; if it had appeared a few minutes earlier, the NYT would probably have refused to publish anything on the subject at all. Even though the only people who care about such things are a handful of media navel-gazers on Twitter, none of whom read the NYT in print.

The argument for caring about such things is that news dissemination has become increasingly fragmented and social: if you have the news first, then your story gets a headstart on Twitter and Facebook, which is how more and more people are getting their news. But frankly while a headstart is nice, it should never make the difference between publishing and not publishing. Readers come first, and all decent publications have their own readership: they shouldn’t be so meek as to assume that their readers will have invariably found the same news elsewhere, just because someone else’s version arrived a little earlier.

James Ball, like most journalists, assumes that news consumers go to news websites in order to find out what is new, what is breaking. But that’s not true. They go to understand the world, broadly. If Vox and FiveThirtyEight help their readers to understand the world, then they will have done their job. No site is exhaustive, and no site will be better at providing all the news that’s happening in the world, on a real-time basis, than the wires and their clients. If you want to succeed online, you need to find a niche, something you do better than anybody else. And it seems to me that explaining and contextualizing the news is a very high calling, even if you can’t explain and contextualize everything.

Of course, explanatory journalism is dependent upon somebody, somewhere, breaking the news in the first place; in my talk I used the word “parasitical”. You can’t have explanation and context without someone on the ground finding and reporting the facts which can then be explained and contextualized.

What’s more, in many cases the person on the ground, who sees the facts in their real-world context, is often the very best person to be doing the contextualizing. That’s why Ezra Klein, for one, is giving his staff beats and is telling them to go out and report news: talking to sources and spending a lot of time in a certain world is pretty much the best way to get the deep understanding of a topic that is necessary to be able to produce a first-rate explainer.

But reporting news, and cultivating sources, is a different thing from breaking news — from being the person who reports the news five minutes or five seconds faster than the other guy. And if you’re not focused on scooping the competition on something incremental, then you’re going to have more bandwidth available for being able to talk to your sources about the big picture, where the real value is.

So let’s try to move away from scoop culture, and away from journalism-for-journalists. Instead, let’s serve our readers. The real readers. The ones who aren’t on Twitter.

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Taxing future income to pay for college

How to pay for the seemingly inexorable rise in the cost of college tuition? One idea seems to be having something of a heyday right now: since college graduates earn more money, why not levy a tax on them which will pay for the cost of their education? After all, that’s what Australia has done for years, with reasonable success.

The Australian system is a loan: you essentially borrow the cost of tuition, and then repay it, with interest, through your income tax payments. Once you’ve repaid the loan, no more tax is due. The alternative is some kind of straight graduate tax, as proposed in the UK, Oregon, and, now, by Neel Kashkari in California. Although Kashkari’s proposal doesn’t go into any detail, he does say that he wants to offer “four-year college students majoring in a STEM field free tuition in exchange for a small interest in their future earnings”.

Kashkari is restricting his proposal to STEM students (those in science, technology, engineering, and mathematics), he says, “to address the potential adverse selection problem”: he doesn’t want a bunch of lazy arts students taking advantage of free tuition and paying back almost nothing from their negligible future salaries. Still, Kashkari’s proposal would be voluntary, so any engineer likely to have substantial earnings after college would rationally avoid the scheme. Instead, it would make much more sense for, say, a botanist planning on spending her career in the field, getting by on grants, post-doc stipends, and the like. Adverse selection works within disciplines just as much as it works across them.

In principle, I’m OK with the idea of graduates paying a slightly higher tax rate than non-graduates. Graduates are in many different ways the “better half” of society: richer, healthier, and generally the people who have got the most out of society, rather than those who have been failed by it. As such, it’s reasonable to ask them to share some of their good fortune with society more generally. But if we are going to have a graduate tax, it should be universal, and it should — like all taxes — be compulsory. The very idea of a voluntary tax is a bit silly, and, as Kashkari says, opens itself up to all manner of adverse-selection problems.

A graduate tax would not be a particularly effective way to tackle problems with education costs. If anything, it would only enable those costs to rise even higher. In general, the cost of college rises to the point at which the pips squeak: universities are becoming increasingly adept at charging just about everybody the absolute maximum they can pay. (This explains why rack-rate tuition charges are going stratospheric: the rich can and will pay through the nose for their education, while everybody else gets a “discount” which is carefully calibrated to bring the cost of tuition down barely into the realm of affordability.) If colleges suddenly found themselves with access to a new stream of income from a graduate tax, they would surely just start raising their tuition rates so that students would still have to take out loans to go to college — even after the government had paid the college from the new funds. Even if tuition were paid for in full, students would still need to find a way to pay for textbooks, room and board, transportation, and other costs. Already, tuition and fees amount to only about 40% of the costs of attending a state college; that percentage could easily fall further.

On top of that, a graduate surtax — even if it was limited to a certain number of years after graduation — would almost certainly end up costing most students more money, over the long term, than current tuition does.

A voluntary tax, however, would take all of these problems and severely exacerbate them — it would enable colleges to charge poor people much more than they currently can, and it would force a massive cost onto anybody unable to pay tuition up-front. Essentially, it would be a highly regressive tax — one paid only by the poor and never by the rich. (Think about it this way: if you could reduce your lifetime tax rate by two or three percentage points, at age 18, for an up-front cost of $50,000, or even $100,000, would you do so? You might well, if you were rich. That’s essentially the deal being offered here, only instead of paying to reduce your tax rate, you’re paying to avoid raising it.)

One version of the voluntary tax is a bit more interesting — the fully private version. The most advanced version of this deal is offered by Upstart: once you have a decent degree, you can then monetize it immediately, by pledging some percentage of your future income in return for an up-front payment. I’ve been skeptical of the Upfront model in the past, but I like it more now, partly because the term has come down from 10 years to 5 years. If this is a private tax, it’s one which doesn’t last much longer than college itself. What’s more, Upstart now offers all students a choice: you can either go down the income-share route, or else you can take out a more traditional loan, with a fixed interest rate.

In both cases, the underwriting process is the same, and operates on an individual, case-by-case basis, rather than broadly, in the manner of a government-levied tax.

There are problems with private taxes, of course. For one thing, unlike public taxes, they’re not tax-deductible: you still have to pay state and federal income tax on your gross income, even though some percentage of that gross income is going to flow straight out to Upstart. And that’s not the end of your tax liability. Upstart sells itself as offering downside protection: if you end up earning very little, you don’t need to pay back the full amount you were given up front. But you are very likely to need to pay income tax on it: the Upstart agreement positively shouts that “ANY SHORTFALL BETWEEN THE FUNDING AMOUNT YOU RECEIVED AND YOUR TOTAL PAYMENTS WILL BE REPORTED BY US AS INCOME TO YOU”. In other words, if you don’t pay back more than you were funded for, you’re going to end up paying income tax on money you were given at least five years ago. Which could be unpleasant.

You’re also likely to pay a substantial sum for that downside protection. Upstart reckons that investors in its platform are going to realize pretty healthy annualized returns, across a diversified base of students — significantly higher than typical interest rates on student loans. Which means that the typical student taking advantage of Upstart’s offer will end up paying more than they would if they’d just stuck to traditional loans: in order to think that you’re getting a bargain, you have to believe that you’re going to be below-average in terms of future salary. Still, there can be good reasons to take the offer all the same. For instance, if you spend a couple of years on some labor of love which pays little or nothing, Upstart will simply defer your obligation, while a student-loan lender will not be nearly as forgiving. (The deferment helps the investor too, of course, who would rather wait for you to start earning real money, and thereby get a higher net return on her investment.)

The fact is, however, that paying for college, either before or after you graduate, by paying a fixed percentage of your future income — well, it’s always going to be a niche thing. As far as the mainstream questions about paying for college are concerned, the CFPB has an excellent guide to the traditional choices. Which should exhaust the possibilities for 99% of students.

The fact that Upstart has launched a loan product is telling: it’s a lot easier to sell debt, rather than equity, to institutional investors, who look at Upstart more for its underwriting technology than as a way of trying to disrupt the way we pay for education. (Upstart reckons that it has a comparative advantage in the loans-to-graduates space: it has a pretty good idea of how much they’re likely to be earning, while most lenders, looking at a blank credit report, will refuse to lend at any rate.)

That’s why Marco Rubio’s proposed bill is very likely to go nowhere. It’s a very aggressive piece of legislation: it allows these contracts to run up to a full 30 years, for instance; it pre-empts the rights of any state to regulate such contracts; and it makes all payments under such contracts “not includable” as a part of your gross income for tax purposes. Basically, Rubio seems to want to be able to privatize the ability to tax individuals for decades at a time, and turn what is currently a clear prerogative of the state into a simple contractual matter between citizens and corporations.

Even putting Rubio’s craziness to one side, however, the idea of a surtax on graduates — even if it’s implemented by the state — is hard to implement, and raises various other problems to boot. For instance: what happens with college dropouts? Do they have to pay the surtax for the years they went to college, even if they’re statistically worse off than high-school graduates? In general, do we really want to tax the one thing that pretty much everybody agrees we need more of?

More broadly still, there are always ethical problems associated with the idea of buying and selling human beings — or even small percentage shares of them. (That’s one reason, I’m sure, why Upstart will let you buy a small share of a graduate, but won’t let you sell that share to anybody else.) The dreadful Fantex shares are up and running now, but I still hope and expect that Fantex will fail. Upstart I think has a brighter future — but probably more in loans than in income-share agreements. And as for state-levied graduate taxes, be they in Oregon, California, or anywhere else, I think we’re still a very long way from them actually being implemented. Especially given the broad opposition they’ve already managed to elicit.

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