Coruscation

Friday blogging:

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Via Feministing.

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The woeful performance of some C.D.O.'s issued by Goldman made them ideal for betting against. As of September 2007, for example, just five months after Goldman had sold a new Abacus C.D.O., the ratings on 84 percent of the mortgages underlying it had been downgraded, indicating growing concerns about borrowers' ability to repay the loans, according to research from UBS, the big Swiss bank. Of more than 500 C.D.O.'s analyzed by UBS, only two were worse than the Abacus deal.

BUSINESS
Banks Bundled Bad Debt, Bet Against It and Won
By GRETCHEN MORGENSON and LOUISE STORY
Published: December 24, 2009
Investigators are trying to determine whether banks like Goldman Sachs intentionally sold their clients especially risky mortgage-linked assets.

Posted to Structured Finance.

"The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen," said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. "When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else's house and then committing arson."

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The relationship between Mr. Rapino and artists is complicated. On the one hand, he must be deferential and accommodating, because without a regular caravan of acts, he has nothing but empty seats and red ink. At the same time, some artists are exasperating, though Mr. Rapino is far too diplomatic to say so.

Instead, he'll simply note that artists -- at least the famous ones -- are in a position these days to define their own destiny. And without question, that destiny includes higher ticket prices. The average price of a ticket to one of the top 100 tours soared to $62.57 last year from $25.81 in 1996, according to Pollstar, far outpacing inflation. The interesting question is why.

Mr. Rapino's theory is that musicians are just benefiting from the same trends that have enriched other superstars, like athletes and actors.

"The ticket was underpriced 40 years ago," he says.

Rival promoters see another culprit in high ticket prices: Live Nation. The company, they say, represents a consolidation of regional promoters that didn't just coincide with rising ticket prices but also helped cause them. Ticket prices, in this telling, have gone up because the largest promoter has been paying whatever-it-takes sums to get bands in the door -- both to drive out competitors and to bring in desperately needed revenue to cover fixed overhead costs and to fill up seats. The company's biggest outlays include "360 deals" with Jay-Z, Madonna, U2 and others, giving the company a stake in tours, recording and merchandise profits in exchange for nine-figure paydays. Jay-Z's deal was reportedly worth more than $150 million.

"Look at what has happened to ticket prices, and the price of everything else at a concert, over the last 10 years, right when consolidation was happening," says John Scher, who books shows in Madison Square Garden, at Radio City Music Hall and elsewhere in New York. "I talk to college kids all the time and they tell me that going to a show at an arena or an amphitheater is just beyond what they can afford. And it's because Live Nation has been paying the acts these outrageous sums, which is just alienating the fan base."

Mr. Rapino denies overpaying for bands, and says that the price of tickets often triples when they're sold by scalpers, which suggests that they were actually underpriced.

Then again, when Mr. Rapino was describing the parlous condition of the concert business in front of Congress last year, he noted that 40 percent of concert tickets go unsold, a statistic that he offered as a symptom of an industry in distress but that might just be evidence that Live Nation and its rivals don't know how to price and sell their products. Today, as high as ticket prices are, Live Nation earns none of its profit from ticket revenue. The artists get nearly all of that. Live Nation's earnings come from stuff sold on site, like beer, parking and advertising.

On this particular afternoon, he has just come from a meeting with Dave Stewart, best known as the male half of the Eurythmics. Before Mr. Stewart leaves, he drops by Mr. Rapino's office to say goodbye.

Mr. Rapino nods through all this. "He said it better than I can," he says, sounding awed.

...

Potentially, these changes are revolutionary. For years, neither promoter nor ticketer has considered fans as the first priority. Ticketmaster's most important clients are venue owners. The promoter, of course, worries foremost about the artist. If you've ever attended a concert and felt treated like an afterthought, now you know why.

But as Live Nation Entertainment tries to create this fan-friendly concert experience and improve its margins, it has tough trends to fight. The number of new bands with arena-packing power is dwindling. The company has made few inroads in hip-hop and rap. We live in a world of downloadable singles, but albums and artists' repertoires are what traditionally sell big tours.

BUSINESS
They're Calling Almost Everyone's Tune
By DAVID SEGAL
Published: April 23, 2010
Live Nation Entertainment, the combination of Live Nation and Ticketmaster, is a colossus unlike anything the industry has ever seen.

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By far the most talked-about diet regimen in New York political circles is that of New York's junior senator, Kirsten E. Gillibrand, who has dropped pounds even faster in recent months than she has would-be election opponents. A spokesman, however, said that Ms. Gillibrand had embarked on her diet -- lean protein with large portions of fruits and vegetables, as prescribed by a nutritionist -- not for the campaign, but to return to her normal weight after having her second child, Henry, who was born in May 2008.

Indeed, an informal survey of lawmakers and candidates turned up fewer women on campaign-season diets, a theory for which was offered by Diane J. Savino, a Democratic state senator from Staten Island.

"Most women are going on a diet whether or not they have a campaign," she said. "Since I hit puberty, there hasn't been a week in my life that I haven't been on a diet. It's kind of like an ever-present condition for me."

N.Y. / REGION
Politicians Are Watching Waste and Waistlines
By NICHOLAS CONFESSORE
Published: April 22, 2010
Voters' anti-incumbent mood has many politicians in Albany worried about image, and their weight has become an issue as they hit the campaign trail.

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FBI fraud alert for mortgage.

Akerlof and Romer (1994)? They show that the common thread in many financial crises is "looting", i.e., fraud. Reading their paper, it is clear that the current crisis was utterly predictable. The Wall Street "banksters" make the street gangs you refer to look like a bunch of pikers.

Looting: The Economic Underworld of Bankruptcy for Profit

George A. Akerlof
University of California, Berkeley; National Bureau of Economic Research (NBER)

Paul M. Romer
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

April 1994

NBER Working Paper No. R1869

Abstract:
During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust.

In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds.

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

SSRN.

See also

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

PK

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This is what I call "dude music." To clarify, just because music is made by men doesn't mean it's dude music. And just because music is made by women doesn't mean it's not dude music.

No, dude music is music that prioritizes the status quo, that prioritize men's voices, men's experiences, and the experiences of people in power and who benefit from the current power structures in our society. Dude music is music that can ever be described as "noodling." Dude music is post-rock, and prog-rock, and rock that exists not to say anything, but to showcase how awesome the men in the band are at playing guitar.

Dude music is music that has nothing to offer people who are disenfranchised or oppressed, because it either is totally uninterested in their disenfranchisement/oppression, or actively profits from it. Dude music is "I went to your concert and I didn't feel anything." Because it is made by men, for men to enjoy, for men to profit from.

Women have three roles: 1) to serve as inspirations for songs; 2) to be sex objects who, hopefully, also make music men feel good about Their Art; 3) to be someone who is dangerously standing in the way of men acheiving greatness (see, e.g., Yoko Ono and Nancy Spungen, Sid Vicious' girlfriend). Women do not make the music. Hopefully they buy the music, but not too many of them because then your music is Not Serious.

Silvana is a lawyer and freelance writer who lawyers and writes in Washington, D.C., and blogs as "M. LeBlanc" at the blog Bitch, Ph.D. She likes ladies who make music, hating on the prison-industrial complex, and french fries.]

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And after students at a state-financed law school clinic at Rutgers University in New Jersey sued to stop a developer's plans for a strip mall in Franklin Township, the developer filed suit against the clinic under the open-records law seeking copies of internal documents, saying he planned to expose how the clinic used taxpayer money to discourage investment in the state.

Back in Maryland, Rena Steinzor, a law professor at the University of Maryland and a former director of the environmental law clinic there, rejected the idea that law clinics in her state or elsewhere were trying to harm industry. "The clinics represent people or groups that can't otherwise afford lawyers and by definition, this work often puts the clinics on the opposite side of the government or powerful interests," she said.

"If Maryland has a clean environment, a fair legal system and an unpolluted bay," she added, "doesn't that help the financial productivity of the state?"

U.S.
School Law Clinics Face a Backlash
By IAN URBINA
Published: April 3, 2010
Law clinics are facing strong pushbacks by the companies they are challenging, and legal experts say the attacks are creating a chilling effect on the clinics.

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By using pretax dollars, you can reduce your overall cost for these items by about 20 percent, estimates Jennifer Calhoun, a principal with Mercer Health and Benefits, a consulting firm.

Another attraction had been the extremely generous list of eligible health expenses -- including deductibles and co-pays, eyeglasses and dental work, over-the-counter cold medicine, sunscreen and vitamins. But under the new law, starting Jan. 1, flex-spend users will no longer be able to submit claims for over- the-counter medicines unless they have been specifically directed to use them by a doctor.

For many consumers, having to start paying for cough drops or Tylenol with after-tax dollars probably is not a big deal. But the change will probably be felt by people with chronic illnesses who depend on drugs that have gone from prescription-only to over-the-counter status, like Claritin or other allergy medicines, or heartburn pills like Pepcid, Ms. Calhoun said.

And there is another big flex-spend change ahead: starting in 2013 the annual limit that any employee may contribute to these plans will be restricted to $2,500. Many companies had allowed much more.

The policy rationale for that change is simple. As the health law ushers in more comprehensive, affordable coverage, Kelly Traw, a principal at Mercer's Washington Resource Group, said the assumption was that employees would have less need for flexible spending accounts. And the revenue the government may get by limiting this tax break is meant to help finance the nation's health care overhaul.

If you look only at the averages, the new cap actually seems more than adequate. Although about 85 percent of companies with 500 or more workers offer health care flexible spending benefits, only 27 percent of eligible employees use them, according to Mercer. And the average account annual account balance is about $1,400 -- far less than even the new limit.

HEALTH
Flexible Spending, a Little Less So
By WALECIA KONRAD
Published: April 16, 2010
After Jan. 1, using pretax dollars for most over-the-counter medicines will not be allowed, and in 2013, lower limits for spending plans take effect.

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Until now, it has been perfectly legal in most states for companies selling individual health policies -- for people who do not have group coverage through employers -- to engage in "gender rating," that is, charging women more than men for the same coverage, even for policies that do not include maternity care. The rationale was that women used the health care system more than men. But some companies charged women who did not smoke more than men who did, even though smokers have more risks. The differences in premiums, from 4 percent to 48 percent, according to a 2008 analysis by the law center, can add up to hundreds of dollars a year. The individual market is the one that many people turn to when they lose their jobs and their group coverage.

Insurers have also applied gender-rating to group coverage, but laws against sex discrimination in the workplace prevent employers from passing along the higher costs to their employees based on sex. Gender rating has taken a particular toll on smaller or midsize businesses with many women, like home-health care, child care and nonprofits. As a result, some businesses have been unable to offer health coverage or have been able to afford it only by using plans with very high deductibles.

Advocates for women's health said one of the new law's benefits would be to ban the denial of health coverage to women who have had a prior Caesarean section or been victims of domestic violence. Some companies providing individual policies have refused coverage in those circumstances, regarding Caesareans or beatings as pre-existing conditions that were likely to be predictors of higher expenses in the future.

In a statement issued Thursday, Senator Mikulski said: "One of my hearings revealed that a woman was denied coverage because she had a baby with a medically mandated C-section. When she tried to get insurance coverage with another company, she was told she had to be sterilized in order to get health insurance. That will never, ever happen again because of what we did here with health care reform."

The passage, Sec. 1557 on page 368 of the 2,074-page bill, says: "Except as otherwise provided for in this title (or an amendment made by this title), an individual shall not, on the ground prohibited under Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), Title IX of the Education Amendments of 1972 (20 U.S.C. 1681 et seq.), the Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.), or Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an executive agency or any entity established under this title (or amendments)."

What it means, Ms. Greenberger said, is that no organization receiving any federal money at all -- as insurers generally do -- can discriminate on the basis of sex. Gender rating, she said, "is a problem whose days are numbered."

HEALTH
Overhaul Will Lower the Costs of Being a Woman
By DENISE GRADY
Published: March 29, 2010
Until now, it has been legal in most states for insurance companies to engage in "gender rating," that is, charging women more than men for the same coverage.

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Focusing on the statistical middle class -- the middle 20 percent of households, as ranked by income -- underlines this point. Households in this group made $35,400 to $52,100 in 2006, the last year for which the Congressional Budget Office has released data. That would describe a household with one full-time worker earning about $17 to $25 an hour. Such hourly pay is typical for firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers, according to the Bureau of Labor Statistics.

Taking into account both taxes and tax credits, the average household in this group paid a total income tax rate of just 3 percent. A good number of people, in fact, paid no net income taxes. They are among the alleged free riders.

BUSINESS
Yes, 47% of Households Owe No Taxes. Look Closer.
By DAVID LEONHARDT
Published: April 13, 2010
The portion of households that owe no income tax is a popular talking point on cable television and talk radio but relies on a cleverly selective reading of the facts.

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This produces a lot of dynamism. As Stephen J. Rose points out in his book "Rebound: Why America Will Emerge Stronger From the Financial Crisis," the number of Americans earning between $35,000 and $70,000 declined by 12 percent between 1980 and 2008. But that's largely because the number earning over $105,000 increased by 14 percent. Over the past 10 years, 60 percent of American adults made more than $100,000 in at least one or two of those years, and 40 percent had incomes that high for at least three.

David Brooks defines a slice of the middle class.

As the world gets richer, demand will rise for the sorts of products Americans are great at providing -- emotional experiences. Educated Americans grow up in a culture of moral materialism; they have their sensibilities honed by complicated shows like "The Sopranos," "The Wire" and "Mad Men," and they go on to create companies like Apple, with identities coated in moral and psychological meaning, which affluent consumers crave.

OP-ED COLUMNIST
Relax, We'll Be Fine
By DAVID BROOKS
Published: April 6, 2010
News of America's death is greatly exaggerated. In reality, the U.S. is on the verge of a demographic, economic and social revival.

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At the heart of the existing process is a strategic choice between liquidation under Chapter 7 or rehabilitation under Chapter 13. Under Chapter 7, households give up all of their nonessential assets (as determined by the law of the state where they live), but pay nothing out of any future income to clear their debts; those debts are simply erased. Under Chapter 13, households make payments out of future income, but are more likely to retain their homes and automobiles.

The 2005 reforms, driven by an exaggerated concern that debtors might game the system, instituted a series of paper-intensive procedural safeguards. All debtors must produce documents that estimate potential increases in expenses or income during the year to come, a monthly net income statement and a complex "means test calculation" that certifies expenditures in a large number of specific, carefully defined categories.

the bankruptcy system was doing its job, the mortgage-driven financial crisis should then have led to a sharp increase in filings under Chapter 13. Homeowners unable to keep up with their mortgages should have been able to file for relief under Chapter 13, resolve their problems and move on with their lives. Yet the share of Chapter 13 filings fell in 2009 to only 28 percent of all filings, from 42 percent in 2006.

That's another perverse result of the 2005 reforms: Chapter 13 does not let people avert foreclosure by paying the actual value of their homes, even when their bubble-era mortgages far exceed realistic market prices. In fact, a "special rule" for home mortgages allows lenders to prevent normal bankruptcy relief for borrowers. Thus, the reforms created a system that makes it harder to file for Chapter 7 while doing nothing to make Chapter 13, once the savior of homeowners, useful in this sort of mortgage crisis.

OP-ED CONTRIBUTOR
A New Chapter for Bankruptcy
By RONALD MANN
Published: March 12, 2010
A proposal to make our bankruptcy system simpler and to make it easier for debtors to get back on their feet.

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It can take a borrower six to seven months to find out whether he or she qualifies for a permanent mortgage loan modification under the federal foreclosure relief program, Making Home Affordable, according to Barclays Capital.

In Maryland, for example, lawmakers extended the foreclosure process from 15 days to 135 days in 2008 and are considering emergency legislation to force lenders into mediation with a borrower before foreclosing on a property. But other states and jurisdictions have even more drastic measures to slow down the foreclosure process. "There were cases where sheriffs were refusing to file foreclosure notices," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

After a temporary foreclosure moratorium in 2008, the backlog of homeowners facing foreclosure in Maryland has surged. The number of Maryland homeowners who are seriously delinquent or in the midst of the foreclosure process nearly doubled during the fourth quarter of 2009 compared with the same period a year earlier, according to data from the Mortgage Bankers Association.

"Lenders are deluged by late-stage delinquencies. The pent-up foreclosure inventory is there," said Massoud Ahmadi, director of research for the Maryland Department of Housing and Community Development

"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital.

New round of foreclosures threatens housing market
By Renae Merle
Washington Post Staff Writer
Friday, March 12, 2010; A01

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The lenders' thinking, said the economist Thomas Lawler, went like this: "I lend someone $200,000 to buy a house. Then he says, 'Look, I have someone willing to pay $150,000 for it; otherwise I think I'm going to default.' Do I really believe the borrower can't pay it back? And is $150,000 a reasonable offer for the property?"

Short sales are "tailor-made for fraud," said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. "In a perfect world, this would work," he said. "But because estimates of value are inherently subjective, it won't. The banks don't want to sell at a discount."

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

"You have one loan, it's no sweat to get a short sale," said Howard Chase, a Miami Beach real estate agent who says he does around 20 short sales a month. "But the second mortgage often is the obstacle."

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

"This is not an opportunity for the customer to just walk away," Ms. Huey said. "If someone doesn't come to us saying, 'I've done everything I can, I used all my savings, I borrowed money and, by the way, I'm losing my job and moving to another city, and have all the documentation,' we're not going to do a short sale."

BUSINESS
Program Will Pay Homeowners to Sell at a Loss
By DAVID STREITFELD
Published: March 7, 2010
The Obama administration will offer homeowners $1,500 to sell for less than the mortgage balance.

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the 2008 book "Wrestling With Starbucks," in which the labor advocate Kim Fellner considers the ethical pros and cons of being one of the company's many customers; it is hard to imagine a similar book about, say, Dunkin' Donuts, let alone California Pizza Kitchen.)

In this debate, the element of the Starbucks idea that matters is the frequently made observation that the chain doesn't really sell coffee; it sells an experience. That experience is the comfortable cafe, a spot where can you commune with the like-minded, luxuriate in your private thoughts and if not actually strike up conversations with interesting strangers, at least entertain the fantasy that this could happen. It has been recorded many times that Starbucks holds itself out as a "third place" -- not home, not work, but a space where community members can come together and feel comfortable.

The "third place" notion, and the term, come from Ray Oldenburg, a sociologist whose 1989 book, "The Great Good Place," argued for the importance of informal gathering spots -- the English pub, the Viennese cafe -- as crucial locations of community-binding that need to be maintained. It seems fair to say that Starbucks is not what he had in mind. (And in reality, a reported 80 percent of what is bought at Starbucks is carried out and consumed someplace else.) But the company hasn't been shy about putting forward a version of this idea that seeks to elevate it above mere profit-seeking rivals. Last summer, for instance, following reports that some coffee shops were cracking down on idlers who soak up hours of free wi-fi and don't do much actual coffee-buying, Starbucks reiterated that it had no such rules, specifically because it was devoted to "making the third-place experience for every Starbucks customer."

MAGAZINE
Crossfire
By ROB WALKER
Published: March 22, 2010
Starbucks would prefer to be left out of the latest gun-rights debate. Here's why it can't.

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Pressing further, the developer sent a letter to all the renters in January offering a deal -- and doing the math to help them see its appeal. Renters were paying $6,500 a month for a two-bedroom two-bath apartment with 1,400 square feet of space. Mr. Gladstone offered the unit at a 10 percent discount from the original asking price, which dropped the price tag to $1.75 million. With 70 percent financing at current rates, the monthly mortgage payments should be about $6,300 a month. The common charge for the building is about $1,200 a month.

But the tax savings -- including the mortgage interest deduction on the federal income tax and local homeowner tax relief programs -- would effectively bring an owner's net monthly payment to about $5,100, according to the letter. That would mean monthly savings of more than $1,000.

REAL ESTATE
The Renter Roadblock
By HILARY STOUT

Published: March 4, 2010
Renters were a godsend when the market went into hibernation. But now that buyers are stirring, some owners wish their tenants would just go away.

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