From http://economix.blogs.nytimes.com/2009/04/07/go-fish-for-capitalists/:

Inspired by the credit crisis, a new satirical card game in Britain invites players to take the role of banking executives, secretly embezzle their banks’ assets, pay themselves gigantic bonuses and use government bailouts to secure as much personal wealth as possible while ensuring their customers’ trust.

The card game, called “Crunch,” is the brainchild of the Web designer Andrew Sheerin (from Cambridge, England), his friend Andy Tompkins and the children’s book illustrator Tom Morgan-Jones.

The game, which is for two to four players, is “a mixture of strategy,” Mr. Sheerin says, “which comes from running your bank well, and real skill, which comes from actually removing cards from the table without anyone noticing.”

The Digital Money Forum blog says:

The game served a dual purpose, both of which left me delighted with it. First of all, it was fun to play. Basically, you build up your bank's lending against assets (ranging from shares in listed companies to Nazi gold) and then when a crunch comes you trade in trust for government bailouts. It didn't take long to learn, and both the kids and adults enjoyed it. It had an unexpected second purpose, though. I bought it for fun, but in playing it the kids asked a lot of questions about the credit crunch, about the relationship between assets and debt, and about the idea of deliberately growing your workforce and assets to become too big to fail (adding "workforce" cards also gains you "trust" cards).

Funagain Games has it for $12.99, a bit less than the £8.99 the game company charges. Cheaper than Amazon's price of $14.08, too.


I have no connection with either the game's publisher, TerrorBull Games, or that retailer, Funagain Games. I just think the game looks fun.

"Americans Still Delusional About House Prices" -- Henry Blodget, discussing Prof. Robert Shiller's most recent house buyer's attitude survey.

"Americans are still delusional about house prices? What does that make us Brits? Preposterously, psychotically deranged about house prices?" -- reaction in the FT Alphaville blog

PRESS RELEASE: 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT

From http://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment:

CHICAGO—September 24, 2009—37signals is now a $100 billion dollar company, according to a group of investors who have agreed to purchase 0.000000001% of the company in exchange for $1.

Founder Jason Fried informed his employees about the new deal at a recent company-wide meeting. The financing round was led by Yardstick Capital and Institutionalized Venture Partners.

In order to increase the value of the company, 37signals has decided to stop generating revenues. “When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation,” said Mr. Fried. “Once you have profits, it’s impossible to just make stuff up. That’s why we’re switching to a ‘freeconomics’ model. We’ll give away everything for free and let the market speculate about how much money we could make if we wanted to make money. That way, the sky’s the limit!”


Proof that 37signals is now a $100 billion dollar company.
To help handle the burdens of an increased valuation, 37signals hired former YouTube exec Craig Mirage as Chief Operating Officer earlier this month. Mirage hopes to replicate YouTube’s valuation success at 37signals. “Of course, the investment comes with great expectations. But you should see the spreadsheet models we’re making up. Really breakthrough stuff,” said Mirage.

“37signals will lead the new global movement filled with imaginary assumptions on growth and monetization potential,” he continued. “We’re excited to roll out a list of unconfirmed revenue possibilities that involve crowdsourcing, a robust set of widget creation tools, 3G, augmented reality, social stuff, and an app store. Also, everything we make will include a compass.”

From Felix Salmon's blog:

"Twitter seems to have quadrupled in value over the course of just a few months: after raising $35 million at a $250 million valuation earlier this year, it’s now raising another $50 million at a — wait for it — $1 billion valuation. At these kind of levels, one assumes, there must be some idea of how to make money in the future. I also hope the founders are beginning to cash out at this point: or does Twitter really have a burn rate which would make Michael Wolff proud?"

The Economist's Buttonwood blog has posted a Global Debt Comparison visualization at http://buttonwood.economist.com/content/gdc. You can use the page to compare how deeply in debt various countries are.

The world total is $35 trillion and counting. Fortunately we just owe that money to other earthlings rather than, say, some other planet.

Yesterday, Judge Jed S. Rakoff threw out the Securities and Exchange Commission's proposed settlement with Bank of America. The S.E.C. alleges that the Bank lied to shareholders by failing to inform them of up to $5,800 million* in bonuses paid to Merrill Lynch employees just before Bank of America bought Merrill last year. In the proposed settlement, the Bank would pay the S.E.C. $33 million in fines, and the S.E.C. would drop the case.

From Judge Rakoff's order (copy hosted at http://online.wsj.com/public/resources/documents/bofaorder914.pdf):

In other words, the parties were proposing that the management of Bank of America – having allegedly hidden from the Bank’s shareholders that as much as $5.8 billion of their money would be given as bonuses to the executives of Merrill who had run that company nearly into bankruptcy – would now settle the legal consequences of their lying by paying the S.E.C. $33 million more of their shareholders’ money.

[T]he notion that Bank of America shareholders, having been lied to blatantly in connection with the multi-billion-dollar purchase of a huge, nearly-bankrupt company, need to lose another $33 million of their money in order to “better assess the quality and performance of management” is absurd.

It is one thing for management to exercise its business judgment to determine how much of its shareholders money should be used to settle a case brought by former shareholders or third parties. It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away.

Oscar Wilde once famously said that a cynic is someone “who knows the price of everything and the value of nothing.” Oscar Wilde, Lady Windermere’s Fan (1892). The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.

Yet the truth may still emerge. The Bank of America states unequivocally that if the Court disapproves the Consent Judgment, it is prepared to litigate the charges. BofA Reply Mem. at 5. The S.E.C., having brought the charges, presumably is not about to drop them. Accordingly, the Court, having hereby disapproved the Consent Judgment, directs the parties to file with the Court, no later than one week from today, a jointly proposed Case Management Plan that will have this case ready to be tried on February 1, 2010.

SO ORDERED

As Andrew Clark wrote yesterday in the Guardian: "Thank goodness for an independent judiciary."

(The Wall Street Journal adds: "We look forward to [the trial], especially in light of the recent news that Fed and Treasury knew all about these bonuses and stayed mum." a reference to allegations circulating in the blogosphere that the S.E.C may have been going easy on Bank of America in order to bury the claim that Chairman Bernanke and Secretary Paulson exerted pressure on Bank of America's CEO Ken Lewis not to talk about the problems at Merrill.

Perhaps we'll get to hear about it at trial.)

*Consistency for emphasis. See xkcd's take.

(Photo from a followup article in the LA Times.)
From http://www.latimes.com/business/la-fi-malibu-wells11-2009sep11,0,1323579,full.story:

Bernard L. Madoff's massive fraud stunned some of the wealthy denizens of Malibu Colony, especially when a couple devastated by the scheme surrendered their oceanfront home to Wells Fargo Bank.

But some neighbors say the real shocker came when they saw one of the bank's top executives spending weekends in the $12-million beach house and hosting eye-catching parties there. What's more, Wells Fargo spurned offers to show the property to prospective buyers, a real estate agent said.

Residents identified the house's occupant as Cheronda Guyton, a Wells Fargo senior vice president who is responsible for foreclosed commercial properties.

The home's former owners, Lawrence and Linda Elins, didn't respond to requests for an interview.

Their real estate agent, Irene Dazzan-Palmer, said she had tried to lease the home for the couple last spring after they were "devastated" by Madoff losses. But before she could find a renter, the couple signed over the property to Wells Fargo to help satisfy a larger debt, she said.

Wells Fargo subsequently denied requests to show the house to prospective buyers, said Dazzan-Palmer, a Coldwell Banker specialist in Malibu Colony properties.

Residents of the gated Malibu Colony said they obtained Guyton's name from the community's guards, who had issued her a homeowner's parking pass.

Colony residents said the woman they believe to be Guyton, along with her husband and two children, took up occupancy in home No. 106 in Malibu Colony shortly after Lawrence Elins turned it over to Wells Fargo Bank on May 13.

The residents said the family spent long weekends at the home and had guests over, including a large party the last weekend of August that featured a waterborne arrival.

"A yacht pulled up offshore, with one of those inflatable dinghies to take people back and forth to the shore," said Roman's wife, Elaine Johnson. "About 20 people got taken over in the dinghy."

Malibu Colony employees who were not authorized to speak publicly said the community association at the start of the summer had issued Guyton a parking permit of the type given to Colony homeowners.

When a Times reporter used the buzzer at the home's steel gate on Labor Day, a woman answered the intercom but declined to identify herself or come to the gate.

Asked whether the home had been foreclosed on, she said: "It's not foreclosed. It's owned by Collin Equities" -- a Wells Fargo unit that liquidates foreclosure properties.

The woman on the intercom denied that she was living at the house or had been using it periodically over the summer. Asked whether she could say why she was at the home, she answered, "No, I cannot."

From http://borowitzreport.com/article.aspx?ID=7047:

According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is "a good fit" because "they're in the business of printing money and so are we."

The Goldman spokesman said that the merger would create efficiencies for both entities: "We already have so many employees and so much money flowing back and forth, this would just streamline things."

Mr. Hestron said the only challenge facing Goldman in completing the merger "is trying to figure out which parts of the Treasury Dept. we don't already own."

Goldman recently celebrated record earnings by roasting a suckling pig over a bonfire of hundred-dollar bills.

Elsewhere, conspiracy theorists celebrated the 40th anniversary of NASA faking the moon landing.

From http://mpettis.com/2009/06/china%e2%80%99s-loan-growth-isn%e2%80%99t-boosting-my-confidence-in-china%e2%80%99s-%e2%80%9cgreen-shoots%e2%80%9d/:

I know I have made a number of references to the 33 A.D. banking crisis in Rome as one of the first recorded cases of a banking panic. I often get questions on it, so just for the fun of it, and because I have wanted to do this for a long time, let me post here a portion of Chapter 15 from Will Durant’s History of Roman Civilization and of Christianity from their beginnings to AD 325

The famous “panic” of A.D. 33 illustrates the development and complex interdependence of banks and commerce in the Empire. Augustus had coined and spent money lavishly, on the theory that its increased circulation, low interest rates, and rising prices would stimulate business. They did; but as the process could not go on forever, a reaction set in as early as 10 B.C., when this flush minting ceased. Tiberius rebounded to the opposite theory that the most economical economy is the best. He severely limited the governmental expenditures, sharply restricted new issues of currency, and hoarded 2,700,000,000 sesterces in the Treasury.

The resulting dearth of circulating medium was made worse by the drain of money eastward in exchange for luxuries. Prices fell, interest rates rose, creditors foreclosed on debtors, debtors sued usurers, and money-lending almost ceased. The Senate tried to check the export of capital by requiring a high percentage of every senator’s fortune to be invested in Italian land; senators thereupon called in loans and foreclosed mortgages to raise cash, and the crisis rose. When the senator Publius Spinther notified the bank of Balbus and Ollius that he must withdraw 30,000,000 sesterces to comply with the new law, the firm announced its bankruptcy.

At the same time the failure of an Alexandrian firm, Seuthes and Son due to their loss of three ships laden with costly spices and the collapse of the great dyeing concern of Malchus at Tyre, led to rumors that the Roman banking house of Maximus and Vibo would be broken by their extensive loans to these firms. When its depositors began a “run” on this bank it shut its doors, and later on that day a larger bank, of the Brothers Pettius, also suspended payment. Almost simultaneously came news that great banking establishments had failed in Lyons, Carthage, Corinth, and Byzantium. One after another the banks of Rome closed. Money could be borrowed only at rates far above the legal limit. Tiberius finally met the crisis by suspending the land-investment act and distributing 100,000,000 sesterces to the banks, to be lent without interest for three years on the security of realty. Private lenders were thereby constrained to lower their interest rates, money came out of hiding, and confidence slowly re-turned.

Except for the exotic names (I was delighted to see that there was a banking firm by the name of Brothers Pettius - maybe an ancestor of mine?) and the spice-bearing ships, this story has a remarkably contemporary ring to it, as do nearly all historical accounts of financial crisis, by the way.

"The 'Hey, this is just a system I can figure out easily!' is also a problem among engineers first diving into the stock market." --Randall Munroe, rollover for http://xkcd.com/592/

This isn't a particularly surprising occurrence, but apparently much of the American media have chosen (or been asked) not to say much about it.

From http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5423650/Geithner-insists-Chinese-dollar-assets-are-safe.html:

In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: "Chinese assets are very safe."

The comment provoked loud laughter from the audience of students.

I searched around for a video of this, but I couldn't find one.

From http://baselinescenario.com/2009/04/27/geithner-wall-street/:

France in the 1960s and 1970s was the source of a tremendous amount of new philosophical, literary, and critical thinking - Foucault, Derrida, Lévi-Strauss, Baudrillard, Barthes, etc. But in my opinion, the most important member of that intellectual generation was the sociologist Pierre Bourdieu. In Distinction, Bourdieu’s best-known work, he described how economic class is reinforced by cultural capital: economic elites create cultural distinctions, and pass on to their children the ability to make those distinctions, in order to use cultural sophistication as a means of perpetuating class dominance. This may sound abstract, but think about the example that is the subject of Bourdieu’s The Love of Art: museums. Upper-class parents take their children to fine art museums and teach them how to talk about Rembrandt, Monet, and Picasso; later in college, job interviews, and cocktail parties, the ability to talk about Rembrandt, Monet, and Picasso is one of the markers that people use, consciously or unconsciously, to identify people as being from their own tribe. (Note that democratizing museums - making them open to anyone - doesn’t undermine cultural capital, because the key is not looking at paintings, but learning how to talk about them.)

We used the term “cultural capital” in our Atlantic article as a way of describing the influence of Wall Street over Washington. By this, we meant that one of the primary means by which Wall Street got its way in Washington was by creating and propagating the understanding - among sophisticated, educated, cultured people, as opposed to “populists” or the “rabble” that showed up at anti-globalization protests - that what was good for Wall Street was good for the country as a whole. We didn’t mean to say that old-fashioned campaign contributions and lobbying did not play an important role. (We did, however, say that we thought out-and-out corruption of the Jack Abramoff variety was probably a minor factor - not because we have any insider knowledge one way or the other, but simply because such criminal behavior was simply unnecessary given the other levers available.) But I don’t think that implicit quid pro quo bargaining is a sufficient explanation, because I believe it entirely possible that there are honest politicians and civil servants who really, truly believe that they are acting in the public interest when they come to the aid of the largest banks.

Tim Geithner may very well be such a man.

I don’t know Tim Geithner. But I have no reason to believe he is corrupt. Instead, the simplest explanation of the Times article is that he has internalized a worldview in which Wall Street is the central pillar of the American economy, the health of the economy depends on the health of a few major Wall Street banks, the importance of those banks justifies virtually any measures to protect them in their current form, large taxpayer subsidies to banks (and to bankers) are a necessary cost of those measures - and anyone who doesn’t understand these principles is a simple populist who just doesn’t understand the way the world really works.

(Note: I moved the link to the Times article referenced so that it is linked from the section I quote.)

In the course of New York Attorney General Andrew Cuomo's investigation into last December's Bank of America - Merrill Lynch merger, Bank of America's CEO Ken Lewis has testified that then Treasury Secretary Henry Paulson threatened to remove the management and board of Bank of America if Bank of America backed out of the deal with Merrill Lynch. Secretary Paulson, in turn, said that he made the threat at the request of Federal Reserve Chairman Ben Bernanke.

Moreover, Lewis has testified that he was instructed by Secretary Paulson not to disclose the losses at Merrill Lynch that Bank of America had discovered. These losses were given as the reason Bank of America wanted to exit the deal.

Securities regulations require "material facts" to be fully disclosed in a timely manner to regulators and public stock markets.

The New York Times Dealbook blog reports denials from both Chairman Bernanke and Secretary Paulson:

Following news reports about the testimony, a spokeswoman for Mr. Bernanke said Thursday that the Fed did not advise Mr. Lewis or Bank of America on disclosure.

And a representative of Mr. Paulson said in a statement, “Questions of BofA’s disclosures were left up to Bank of America.”

Attorney General Cuomo's letter and supporting exhibits, sent to "certain overseers and regulators of TARP, the Treasury Department, and the banking industry" are at http://www.oag.state.ny.us/media_center/2009/apr/apr23a_09.html

Wall Street Journal story at http://online.wsj.com/article/SB124045610029046349.html

Edit: I just noticed that if you click through the link you only get a preview. ( So, here's text behind the cut. )

Update: Deal Journal interview with Yale Law School deputy dean Jonathan Macey.

From a commenter on the Financial Times Alphaville blog:

"You know when people in the market start relying on unsourced rants from white supremacist, Holocaust-denying blogs for their information, that no one really has a clue. As if you needed more proof that people who trade securities for a living are just guessing."

re: Turner Radio Network's claim to have obtained a leaked copy of the Treasury's stress test results for the top US banks. (No, I'm not going to bother linking to it.)

From http://dealbreaker.com/2009/04/what-is-going-to-happen-to-the.php:

Maybe it is just us, but there are a number of things that just scream "wishful thinking." Like the return of Growing Pains to television, a re-do on the OJ Simpson trial, owning your own private island, or a widely successful debt-for-equity swap at General Motors.

General Motors Corp. is planning to make a formal offer to all bondholders by April 27 to exchange their $27.5 billion in claims for equity, according to a person with knowledge of the discussions.

Yes, we know, we know, the administration wants 66% of the original bonds whacked out via such a swap so their fantasy of a "surgical bankruptcy" can be realized (where "surgical bankruptcy" means "fail to piss off the UAW too badly") but no one seems very likely to want to make nice-nice with this administration in a case like this (when being "nice" means giving up cash). This hasn't stopped the administration from trying, though the latest efforts (concentrating on how bad it would be for Detroit if the bankruptcy turns out as anything but a blistering bit of unexpected caning for bondholders) seem a little familiar to us. Familiar sort of like the guilt trip your mother used to play on you when you were twelve.

And from http://baselinescenario.com/2009/04/16/forecasting-the-official-forecasts-spring-2009-edition/:

Many officials seem to have bought into some version of the “it’s a V!” take on the global recession. To me, this looks like wishful thinking. Whether or not you support the “V” view fully, officials should surely be spending more time preparing for worse scenarios.

Just in case - why not prepare properly for the cross-border resolution issues that would arise from the failure of a major global bank? Why did the G20 decline to take on this issue properly? Even the IMF’s baseline, I expect, will suggest potentially serious problems ahead.

"In any case, during the same month [September 1929] reassurance came from still higher authority. [Treasury Secretary] Andrew W. Mellon said, 'There is no cause for worry. The high tide of prosperity will continue.'

Mr. Mellon did not know. Neither did any of the other public figures who then, as since, made similar statements. These are not forecasts; it is not to be supposed that the men who make them are privileged to look further into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of the business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will continue. Especially among businessmen the faith in the efficiency of such incantation is very great."

--John Kenneth Galbraith, The Great Crash

Charles Franklin, on The Irony of Tax Cuts:

The Republican driven tax cuts have worked. Voters now have more faith that the federal income tax system is fair than at any other time since World War II. Moreover these changes in public opinion coincide with the Republican capture of the House in 1994 and accelerate with the Bush tax cuts. But the irony of this success is that the GOP finds it hard to claim credit for a job well done. Once the tax monster is slain, who do you fight next? Once the people are no longer grumpy about unfair taxation (tea parties notwithstanding), how do you keep the issue alive? By successfully shifting public views of the fairness and burden of federal income taxes through repeated cuts, Republicans inadvertently also reduced the salience of their best issue of the 29 years since the Reagan Revolution. The public now agrees that tax cuts are good, but they are no longer particularly angry about taxes.

Today Ari Fleischer, former press secretary to President Bush, offered an interesting proposal in the Wall Street Journal: raise income taxes on those who currently don't pay. That is a rather shocking proposition from the party that has spent nearly 30 years arguing that tax cuts are good for everyone. The very success of that political program has been to remove millions from the tax roles, and put nearly half within striking distance of paying no federal income taxes. So you'd think that would be cause for celebration among Republicans for a job well done and a lot of credit to claim with those voters.

Alas, those voters aren't voting Republican in overwhelming numbers. The way to not have to pay taxes is to not make a lot of money. And while these less taxed citizens appear to have been pleased with lower taxes, that hasn't translated into a majority of Republican votes among these non-taxpayers. So Mr. Fleischer has now taken on the burden of convincing nearly half of the public that it is not good for them to pay little or no income taxes. Instead, fairness demands that everyone pay taxes. That's a breathtaking argument for a Republican to make.

Fleischer goes on to argue that it is poor policy for the top 10% of earners to pay 72% of all income taxes, and that is probably a discussion worth having. But the argument for raising income taxes on the bottom 90% to provide a little more load sharing for the top 10% is an interesting electoral calculus to say the least.

Obama's plan to lower taxes for more of the lower 90% (or 95%, whatever) plays to the anti-tax momentum Bush built. And it means that Republicans don't have the angry taxpayer revolt of the late 1970s that helped build the Reagan platform that transformed tax policy for a generation of Republican politicians.

And so we are left with the irony of Republican success. How do you keep tax cuts at the center of your economics when nearly half don't pay, but aren't as grateful as they might be. And if the issue doesn't have the mass appeal it did for Reagan, can it still motivate the base (remember those tea parties!) enough to continue to have legs. But I have to wonder if Mr. Fleischer's plan is really the way for the anti-tax party to go.

I do think it's a bit simpler. The Wall Street Journal is read, by and large, by rich people, and Ari Fleischer wrote a nice little essay to make them happy. That it's political kryptonite doesn't concern him particularly.

He might even believe what he's saying is a good idea, but he doesn't have to try to sell it to the voters.

Boston (WBZ report):

MBTA General Manager Dan Grabauskas filed paperwork on Monday to increase fares on subways, busses and trains. He also said the T's budget problems are so severe, commuter rail service may have to be drastically reduced at night, and even eliminated on the weekends.

New York (Times story):

The base subway and bus fare in New York City would rise to $2.50, up from $2. A 30-day MetroCard would cost $103, up from $81. A monthly ticket on the Long Island Rail Road for a commuter who travels between Ronkonkoma and Pennsylvania Station would increase to $352, up from $278.

The far-reaching service cuts include the elimination of 35 bus routes and the elimination of the W and Z subway lines. Off-peak service on subways and buses would be cut and commuter rail service would be trimmed. About 1,100 transit workers would be laid off. The service cuts would go into effect over the next several months.

Chicago (Tribune):

CTA service cuts and more fare increases must be among the possible options to erase a projected $155 million budget deficit this year, transit officials warned Wednesday, adding that a decision will be made next month.

San Francisco (Chronicle):

Muni riders in San Francisco may have to pay higher fares for less service to help close a projected budget deficit that has ballooned to $129 million, officials announced Friday.

To blame is a state decision last month that eliminated all funding for transit operations. A drop in revenue from parking fines, higher labor costs and cuts from City Hall added to the problem.

Atlanta (Journal-Constitution):

After one of its best years on record, MARTA is headed for one of its bumpiest patches ever, with fare increases all but certain and major cuts in service a distinct possibility, MARTA General Manager and Chief Executive Beverly Scott said Monday.

She predicted users could see service reductions of between 10 percent and 30 percent, depending on the outcome of pending legislative proposals that would change how the agency can spend its money.

MARTA users also will almost certainly see base fare rate hikes of 25 cents, to $2, she said.

Reconnecting America has put together a national map showing which cities in the US are cutting service, increasing fares, or laying off workers, and posted it at http://t4america.org/transitcuts.

Meanwhile, in London, the transport union is to vote whether to go on strike over job and pay cuts.