Felix Salmon

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Step One in the Tim Geithner Legacy Project is complete: Barack Obama delivered a ringing endorsement of the Treasury secretary, who’ll be stepping down on January 25. Here’s the president:

“With the wreckage of our economy still smoldering and unstable, I asked Tim to help put it back together. So when the history books are written, Tim Geithner is going to go down as one of our finest Secretaries of the Treasury.”

Step Two: favorable consensus opinion. Neil Irwin writes that Geithner was “one of the most important Treasury secretaries in history” — he agrees that Geithner’s primary task was to “stop the bleeding” and that Geithner’s experience at the NY Fed made him a highly capable financial first-responder.

Joe Weisenthal pulls a chart from the Oregon Office of Economic Analysis that puts Geithner’s tenure in perspective: compared to previous financial crises — and compared to other countries recovering from the current crisis — the US job market has rebounded relatively quickly. Politico joins in the praise, and includes this gem from a former colleague: “If anything, he was quite focused on the pain the country was suffering”.

Not everybody is so positive, however. Paul Krugman isn’t sad to see him go: “Geithner has consistently been a voice urging the president to cave in for fear of upsetting the markets, with no real concern for the dangers of giving in to blackmail.”

And Binyamin Appelbaum tweeted his own take on Geithner’s legacy by pointing to an August piece headlined “Cautious moves on foreclosures haunting Obama”. The administration, Appelbaum wrote, “tried to finesse the cleanup of the housing crash”, and that caution hurt economic growth. (You can read more on the Obama Treasury’s troubled housing legacy here and here.)

What’s Step Three? Geithner told Charlie Rose that he’s unlikely to write a book after leaving office, and he’s equally unlikely to want to stay in Washington as Fed chairman. So maybe he’ll just work on his jump shot for a while before taking that inevitable highly-remunerative job at BlackRock. — Ben Walsh

On to today’s links:

Regulations
The whole system of corporate disclosure in the UK is broken – Paul Murphy

Liebor
Deutsche reportedly made $650 million in ’08 betting on everyone’s favorite rigged interest rate – WSJ

Popular Myths
Solyndra stunk — but the green stimulus program worked – WaPo

#MintTheCoin
Meet the anonymous commenter who started the trillion-dollar coin meme – Wired

Alpha
It turns out that it’s actually quite hard to tell if Herbalife is (technically) a pyramid scheme – Steven Davidoff
“Have a shake, share an Aloe”: A great liveblog of the Herbalife conference – Will Alden

Compelling
The myth of Africa’s rise: Growth and development aren’t the same thing – Foreign Policy
Lagos and Nairobi are the new Tokyo or Frankfurt – Economist

The Oracle
Warren Buffett personally guarantees that the banks he has personally invested in are great – Bloomberg

Housing
Americans are finding themselves legally liable for homes they didn’t know they still owned – Reuters
Why home prices will rise slower than last year – Calculated Risk

Quotable
David Boies, master of groan-worthy, misleading analogies about AIG – Bloomberg

Charts
Who owns the US stock market? Households, mostly – Global Macro Monitor

Politicking
“Fix the Debt” media stars lobbied for special tax breaks and subsidies for their clients – Timothy Carney

Oxpeckers
Web “media companies are having to run faster and faster just to stay in the same place” – Mathew Ingram

Wonks
The Jack Lew signature generator – Yahoo

Time To Panic
The coming coffee apocalypse – The Awl

Sad But True
The end of football – Ta-Nehisi Coates

Regulations
New Basel rules are a “transfer from taxpayers to bank insiders and (perhaps) stockholders” – Simon Johnson

Well Put
“Lindsay Lohan moves through the Chateau Marmont as if she owns the place, but in a debtor-prison kind of way” – NYT

The NYT is leading its home page right now with a big story about the current raging flu epidemic. The cost of this disease is going to be enormous, both in dollars and in lives, and there’s a limited number of things that anybody can do to slow it down. As Kent Sepkowitz says:

This season’s hyperactivity demonstrates emphatically how critical vaccination is to control of influenza… There can be no greater advertisement for vaccination or a louder call for better vaccines than the great influenza outbreak of 2012–13.

Vaccination isn’t perfect — as we’re discovering right now. Especially with respect to influenza, which comes in a dizzying variety of flavors, a vaccine can’t prevent an outbreak every year. But vaccination has proved itself time and time again as being the most ambitious and effective solution to public-health problems that the world has ever seen. Vaccinate enough people, especially children, and you can eradicate entirely some of the world’s most lethal and devastating diseases.

As a result, it’s hard to imagine a more egregious violation of the Hippocratic oath than doing anything to violate the effectiveness of a vaccination program. Seth Mnookin has a wonderful book explaining how skepticism about vaccines is itself a kind of virus — he calls it the Panic Virus. And athough a panic virus does not need a kernel of truth at its core, such kernels are always incredibly dangerous.

Which brings me to the unconscionable behavior of Pakistani doctor Shakil Afridi, as orchestrated by the CIA:

Agents approached Afridi, the health official in charge of Khyber, part of the tribal area that runs along the Afghan border.

The doctor went to Abbottabad in March, saying he had procured funds to give free vaccinations for hepatitis B. Bypassing the management of the Abbottabad health services, he paid generous sums to low-ranking local government health workers, who took part in the operation without knowing about the connection to Bin Laden. Health visitors in the area were among the few people who had gained access to the Bin Laden compound in the past, administering polio drops to some of the children.

Afridi had posters for the vaccination programme put up around Abbottabad, featuring a vaccine made by Amson, a medicine manufacturer based on the outskirts of Islamabad.

In March health workers administered the vaccine in a poor neighbourhood on the edge of Abbottabad called Nawa Sher. The hepatitis B vaccine is usually given in three doses, the second a month after the first. But in April, instead of administering the second dose in Nawa Sher, the doctor returned to Abbottabad and moved the nurses on to Bilal Town, the suburb where Bin Laden lived.

This is horrible on three levels. First, doctors should treat disease, they shouldn’t allow themselves to be used as pawns in some counter-terrorism game, and they should never be deceptive about what they’re doing. Secondly, and much more importantly, no doctor should ever administer the first dose of a hepatitis B vaccine without then going on to administer the other two doses. That’s the worst thing you can do: it means that the vaccine is utterly ineffective, even as many families think that they’ve now been vaccinated. Thirdly, it’s very easy to draw a direct connection from Afridi’s behavior to the news that eight polio vaccinators have been murdered by militants in Pakistan.

Pakistani preachers have been saying that vaccination campaigns are a western attempt to sterilize Muslims; that’s ridiculous, of course, but the fact that the CIA has indeed used vaccination campaigns in the past, as a way to prosecute its own counter-terrorism campaigns, hardly makes it any easier for organizations like the World Health Organization and Unicef to counter the rumors.

What can the US government do about this? Not a lot, sadly. But there is one small thing, which is quite easy, and could conceivably make a real difference at the margin. Here’s Charles Kenny:

A declaration by the US that public health interventions will not be used to gather intelligence could play a vital role in tipping the balance towards successful polio eradication – and enhance US national security. Such a declaration has been proposed in a letter sent to President Obama this Monday signed by the deans of America’s top public health schools. I suggest this could be modeled on – and inserted into – Executive Order 12333 which mandates that “No element of the Intelligence Community shall sponsor, contract for, or conduct research on human subjects except in accordance with guidelines issued by the Department of Health and Human Services,” and bans engagement in or conspiracy towards assassination and actions intended to influence United States political processes, public opinion, policies, or media.

Kenny would like one extra line added to EO12333:

No person acting on behalf of elements of the Intelligence Community may join or otherwise participate in any activity directly related to the provision of child public health services on behalf of any element of the Intelligence Community.

Adding that line could do no harm, and might, conceivably, do quite a lot of good — saving the lives of children and health workers alike. Given the millions of parents who decide whether or not to vaccinate their children every year, even small things can have large potential knock-on effects. Here’s hoping the White House is listening.

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Jack Lew, currently Obama’s chief of staff, will be put up for the top job at Treasury as early as today.

This is the ultimate internal hire: with stints at the director of the Office of Management and Budget and as the Deputy Secretary of State, Lew has “played a role in every big budget deal since 1983,” Joshua Green writes. “He’s a wonk Zelig.”

If there’s a contrast with current Treasury chief Tim Geithner, says Matt Yglesias, it comes not so much from Lew’s background, but from his focus. Geithner is “very much a finance guy” — even though he never actually worked on Wall Street — while Lew is an “in-the-weeds legislative wrangler”.

This isn’t to say Lew has no finance experience: he served a two-year stint at Citigroup, where his group, among other things, invested in John Paulson’s bet against the housing market. One of Green’s sources says Lew ran “a third-rate division at a third-rate bank.”

The Conventional Wisdom pro-Jack Lew case can be found in the many glowing profiles about his “nearly impeccable record”. Lew is consistently portrayed a get-thing-done centrist who has a knack for bipartisanship. In a 2011 profile, Ben Smith called him one of “last of the pragmatic liberals”. This quality lead him to be hailed as “the man who could save Obama’s legacy”. (Nonetheless, Republicans have still managed to hate the pick).

The anti-Lew crowd, on the other hand, apparently includes Wall Street. Because Lew isn’t an industry insider — like, say, Erskine Bowles or Larry Fink — the nomination is “a signal that the president is not as serious about mending his relationship with corporate leaders”, Stephen Gandel says. Jonathan Weil, for his part, thinks Lew is too close to Wall Street, just by virtue of his resume. It may come as some consolation to Wall Street that Lew has said he doesn’t believe deregulation caused the financial crisis, and reportedly busted unions during a stint at NYU. Also, his signature, which will appear on US banknotes, does bear a passing resemblance to a Wall Street bonus check.

As Treasury Secretary, Lew — who has no real experience in financial regulation — will also be the head of the Financial Stability Oversight Council, a new group of regulators charged with preventing the next crisis. And, in picking Lew, Obama may have overlooked other candidates: “The White House has not named an actual outsider to their economic team since taking office,” Ezra Klein writes. – Ryan McCarthy

On to today’s links:

Tin Machines
What David Bowie’s new single tells us about consumption capital – Stumbling and Mumbling

Regulations
Why the Basel change was a bad idea – Felix

Alpha
Dan Loeb and Bill Ackman are squaring off over the future of Herbalife – Reuters

JPMorgan
Jamie Dimon, blind-item gossip merchant – Bloomberg

The Fed
Meet the Fed’s lone dissenter who thinks the central bank has gone way too far – Binyamin Appelbaum
Switzerland’s central bank is waging risky a currency war against the Euro – WSJ

Crisis Retro
AIG decides not to sue the government that bailed it out — Reuters

Yikes
Morgan Stanley plans to eliminate 1,600 i-banking jobs — Bloomberg

EU Mess
Mario Draghi delegates, listens and doesn’t try to out-German the Germans – Reuters

Dead Ends
It’s official: 3D is dead – The Verge

Investigations
An ex-SAC analyst has given Fed 20 names of people he says are guilty of insider trading – DealBook

Startups
Redditt raises $1 million at a $400 million valuation – Peter Kafka

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As Cardiff Garcia says, when it comes to #mintthecoin, “it’s important for advocates to define carefully what they’re actually calling for”. The basic matrix, as I see it, looks a bit like this:

I’m in the bottom-left corner: Negotiate. That’s the job of the President of the United States: to negotiate with Congress, rather than to do tricksy, Constitutionally-dubious end-runs around it. Joe Weisenthal, to his credit, is also clear where he stands — he’s in the bottom-right corner. He doesn’t advocate using the threat of minting the coin as a negotiating tool; rather, he’s advocating that negotiations should happen as normal, and only in the very last resort, if all negotiations fail, should the coin be deposited at the Federal Reserve so as to avoid a catastrophic default.

One problem is that it’s very hard to keep the existence of the coin secret, especially if the executive-branch negotiators, who are going to be spending a lot of time with the representatives of House Republicans, know that they have it in their metaphorical back pocket. Basically, the existence of  a secret plan to mint a coin is functionally equivalent to a public threat to mint the coin, if the House Republicans find out about the secret plan. In that event, the Negotiate strategy becomes the Bluff strategy. And as Cardiff says, the Bluff strategy is really stupid:

For the Republicans, having Obama threaten to use the coin might be wonderful news because then they could force him to actually use it. By this reasoning, not only will the worst-case scenario of default be avoided, but they could then look forward to screaming “Dictator!” while accusing him of having used a legally questionable tactic (or at least of going against the intent of the law) and of running an end-around on the balance of powers (and actually they’d be right about this).

This argument would be ludicrously hypocritical, but unfortunately it would also play better publicly than the hypothetical White House defence. Which would probably sound something like this: “The Republicans backed me into a corner again, and despite my being the president who said that we should all put aside childish things, I ordered a shiny coin and called it a trillion dollars, which I’m allowed to do because of a poorly written amendment to a law that was undeniably meant for something else.” Not exactly a winning case.

The Open Defiance strategy — let’s just print the coin anyway, and thereby stop the House Republicans from using the threat of default as a negotiating tactic — looks pretty silly too, because you’re basically using a sledgehammer to crack what might ultimately be a pretty thin nut. At this point, it’s worth moving out of the econowonkosphere and into the even weirder world of Republican politics. Once we get there, we learn from the likes of Greg Sargent and Kim Strassel that the Republicans aren’t nearly as coherent on this issue as they were in 2011, and that, in Strassel’s words, there’s a good chance that “Round Two is already Mr. Obama’s”.

The grown-up Negotiate strategy, it turns out, actually has an incredibly high chance of success, while any other strategy risks creating massive political chaos. (I can easily, for example, see the Republican party refusing to support any nominee at all for key positions like Defense and Treasury and State, if Obama goes all scorched-earth with a Coin strategy.)

The Negotiate strategy is far from ideal, of course. Since the debt ceiling has been and will be reached many, many times, even something with a very high chance of success is statistically certain to fail eventually. So the obvious best-case scenario is to abolish the debt ceiling entirely, or, failing that, to raise it to, say, a few quadrillion dollars. But right now, when we’ve already reached the debt ceiling, is probably not the best time to try to negotiate such a thing. (In fact, any time there’s a Democrat in the White House is probably not the best time to try to negotiate such a thing.) For the time being, the executive branch should do what the executive branch has always done when the debt ceiling looms, which is to persuade Congress to raise it.

It’s worth adding a meta-media note here, too. The #mintthecoin meme has successfully migrated from the outer reaches of the econoblogosphere into a fair amount of mainstream media coverage, and as a result it has actually started to be taken seriously outside the Beltway. And even, in a few cases, inside the Beltway too. But be clear, this is absolutely a media-driven meme: people talking about it are not talking about an actual political proposal which an important number of serious DC politicians genuinely want to implement. As I say, it’s a Flying Spaghetti Monster thing — it’s a ticklish thought experiment, nothing more. Many media organizations are having a lot of fun with it, and that’s their right. But, especially in this case, it’s important not to mistake media coverage for reality.

Monday’s Counterparties email went out under the headline “QEBasel“, which may or may not have been an effective way to communicate that the latest relaxation of Basel rules was emphatically done with monetary policy in mind, rather than regulatory prudence. Under the new rules, it might take banks longer to get to a truly safe place, but at least those banks will (we fervently hope) lend more in the meantime, giving a much-needed boost to global growth.

Interestingly, the press reacted very badly indeed to the announcement, which means that Andrew Ross Sorkin, in defending the new rules, is fighting a lonely battle.

He doesn’t do so very well, it must be said. He quotes one John Berlau saying that implementation of Basel as written “almost certainly would have thrown the U.S. and other economies into a recession”, and then says that “Mr. Berlau is right”. Well, Mr Berlau is not right: according to the Basel timetable, very little has to be done this year — and in fact nothing with a 2013 deadline has actually changed at all. The problem with Basel III was never that it would cause some kind of sudden stop in capital flows from banks to borrowers, the minute that it started getting implemented.

And Sorkin also undermines his one genuinely good point. “The chances of a leverage-induced crisis from Wall Street banks right now is quite low,” he writes — and he’s right about that. Indeed, the chances of any leveraged-induced crisis any time before 2019 are very slim indeed. (For one thing, there isn’t enough time, between now and then, to get out of our present slump, find ourselves in a boom, watch the boom get out of control, and then see the boom spectacularly implode.) But here’s the problem: Basel’s leverage requirements haven’t actually changed at all. It’s the liquidity requirements which have changed. And while I’m not worrying about banks’ leverage, I am worrying about their liquidity.

Here’s the difference: leverage requirements protect banks against a sudden drop in the value of their assets. Liquidity requirements, on the other hand, protect banks against bank runs. And bank runs are all about trust and confidence. Banks, especially in the US, might have reasonably strong balance sheets these days. But no one trusts them, or their accounting. (If you don’t believe me, just read Jesse Eisinger and Frank Partnoy in the Atlantic, then you will.) When you don’t have trust, you need liquidity to make up for it — which is why the liquidity requirement is exactly the wrong place for the Basel committee to be fiddling.

What’s more, the Basel committee didn’t just delay the implementation of the liquidity requirements: they changed the requirements themselves. Liquidity is not a completely well-defined term, but it basically means money, or something very very close to it. But the Basel committee has now given up on saying that you need cash, or government bonds, to count against your liquidity requirement. Now, you can even use mortgage-backed securities, if you have enough of them: the rule is that $100 of mortgage-backed securities provide the same amount of liquidity as $50 of cash.

This is a bit silly. If you owe me $50, I’ll accept $50 in cash. In a pinch, I’ll accept $50 in government debt. But I’m not going to accept mortgage-backed securities, any more than the merchants in Times Square accepted a gold bar in lieu of fiat money. The point about liquidity is that it’s money, and mortgage-backed securities aren’t money, they’re securities, which may or may not be easily converted into money at any given point in time. During a liquidity crisis, it’s entirely possible that such things could lose their bid entirely, and that they would therefore be useless in during a bank run.

Another problem here is that the change was not communicated well at all. It was put forward as a significant change in the international system of bank regulation — which is exactly what it is. And as such, it clearly makes bank regulation weaker, and the chances of a crisis some tiny bit greater. But the regulators didn’t change the rules because they thought that the rules were too stringent before; they changed the rules because they wanted banks to lend more, and thereby boost the economy. They just didn’t effectively say what they were doing, with the result that the financial press took the announcement at face value, rather than greeting it as another heterodox way of trying to use central-bank policy to generate economic growth.

The central bankers certainly should have been up-front about what they were doing, because it has important implications. For one thing, they’re playing straight into the hands of the banking lobby. Every time anybody proposes a new bank regulation, no matter how small, the ABA and the IIF and other banking-industry lobbyists will start screaming that the new regulation will depress lending, which in turn will hurt the economy; the clear implication is that even if a regulation makes perfect logical sense from a safety-and-soundness point of view, authorities still shouldn’t implement it if it will reduce the flow of credit from banks into the economy at large. That’s just not true: safety should always come first. But the Basel committee seems to have implicitly accepted that the argument does have validity.

More generally, the committee has clearly determined that if you’ve run out of ammunition in terms of interest rates and quantitative easing, then when you’re searching around for some other monetary-easing tool, regulations are a reasonable place to look. And I really don’t like that precedent. Monetary policy should be entirely separate from bank regulation, even if central banks should properly perform both roles. With the ink barely dry on the Basel III agreement, now is no time to start diluting it for the sake of some hypothetical temporary future marginal boost to growth.

After all, we have no particular reason to believe this stunt will even work. Banks have more than enough liquidity already, to meet the requirements, and they don’t seem to be very keen to lend it out. Sure, the new rules will allow them to lend out that cash, if they want to. But the market right now is rewarding the conservative banks, and punishing those who lend to Main Street. Changing the liquidity rules won’t change that. It will just make banks that much riskier over the long term.

Bloomberg has just found out that the big Friday-night Google party, one of the hottest and loudest and most gruesome events in the annual Davos calendar, is not happening this year; no one is going to miss it. No reason was given for the decision to cancel the party, but the message is a clear one: Google has matured, now, and is going to be a lot smarter about the way it schmoozes Davos.

Google has historically had something of a charmed existence at Davos, mainly because it arrived there under the wing of one of its biggest and most important investors, Jim Breyer of Accel Partners. Breyer is a Davos networker extraordinaire, and knows exactly how to use the conference to his best advantage: my guess is that he gets more valuable high-level facetime over the course of the week than just about anybody, including Bill Clinton.

One way that Breyer does that is by ingratiating himself with the people who matter the most by holding pretty much the only large-scale event where everybody who’s invited, goes. The Accel party has been going on for 18 years now; held in the lovely Kirchner museum, it has always featured an absolutely spectacular wine list; if you’re fortunate enough to score an invite, you will be able to help yourself to some of the greatest wines and Champagnes in the world, all while surrounded — of course — by an elite group of some of the richest and most important people in the world. It’s almost the Platonic ideal of what people imagine Davos parties to be.

When Google started being invited to Davos, its executives had Breyer to show them the ropes — and they also started co-hosting the Accel party. Before long, it was known as the Google party, and was the hottest ticket in town; everybody wanted to go, and eventually it just became too much: too many people trying to get into too small of a space to drink too few wines.

So in 2007, Google struck out on its own. The Accel party remained, but now there was a separate Google party on the other side of the street, in the Belvédère hotel. It was held in the biggest space that the biggest hotel in Davos had to offer, and became one of the two huge parties held in that space every year — the other being the McKinsey party, the night before. Every year, the scene is the same: late at night, when all the dinners are over, the world’s plutocrats converge into a narrow hallway, at the end of which are ID scanners telling bouncers whether you’re On The List or not. If you manage to get past them, you find yourself in an insanely hot and loud party, with lots of drinks, a little food, and seemingly infinite numbers of drunk men in dark suits. It’s essentially unbearable for more than a couple of minutes, and there’s absolutely nothing pleasurable about it.

These parties are eye-wateringly expensive, and I’ve never understood why any corporation would willingly pay for something which so few people actually enjoy. The parties certainly get the hosts a lot of buzz: all day, people will ask you whether you’re going to the McKinsey party, or the Google party. So I guess your company’s name gets mentioned a lot, in the context of something which is superficially desirable. But Google doesn’t exactly have what you’d call a name-recognition problem.

So last year, Google tried a different tack. It still kept its big party at the Belvédère. But it also closed down everybody’s favorite coffee shop, and hosted a series of exclusive dinners there, catered by world-class chefs. Private dinners have always been at the top of the Davos food chain: the smaller and more exclusive the private dinners you get invited to, the more important you are. So Google put a lot of effort into curating amazing tables with first-class food, conversation, and wine.

That kind of thing is vastly more enjoyable for Google’s executives than standing in a sweaty corridor peering at name badges and trying to remember who this drunk gentlemen might be. And it’s much more pleasant for Google’s guests, too. So this year, the other shoe has dropped: while the private dinners will remain, the big obnoxious party is a thing of the past.

The move is a sign of two things. Firstly, Google has learned how to really get the respect of the Davos crowd: invite a very select group of people to something truly special and unique, rather than herding them like sheep into something which feels like the ninth circle of hell. And secondly, Google no longer has the kind of insecurity which results in somebody saying “we need to throw a really big party”. Necessarily, the number of people invited ton one of Google’s dinners is going to be only a tiny fraction of the number of people invited to the party at the Belvédère. And some of them will be cross that they didn’t get an invite. But, so be it. Google might not be evil, but it can live with people being annoyed at it.

I only wish they didn’t have to close down the Kaffee Klatsch in order to host their dinners. That place really did have the most amazing coffee.

*Update: I’m not sure where I got it into my head that Breyer was a big Google investor, he wasn’t. (Maybe I was confusing Google with Facebook?) But Google did start co-hosting the Accel party very early on in its corporate life.

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What kind of thanks does AIG owe the government that bailed it out to the tune of $182 billion? How about a $25 billion lawsuit?

We’re not talking, here, about the 2009 AIG that ran ads saying “The biggest risk is not taking one”. Today’s AIG is the one that’s been saying “Thank you, America”. Still, according to the NYT, AIG’s board will consider joining a shareholder lawsuit filed in 2011 by Hank Greenberg, AIG’s former CEO.

Greenberg’s lawsuit argues that the AIG bailout was unconstitutional, robbed shareholders of billions, chased off private investors and was, as Matt Levine puts it, “much crappier than everyone else’s” bailout. You can read the full suit, but Greenberg also has a plain-English summary in his new book “The AIG Story“, which, incidentally, comes out later this month. In the preface, Greenberg sums up his beef that AIG’s counterparties were paid full value for derivatives contracts with the insurer:

The government channeled a large portion of [its bailout] funds, some $60 billion in all, not to help AIG but to save various large banks, including Goldman Sachs, paying them full price on contracts whose value was known to be a deep discount from that…The government’s arrangement doomed AIG to repay these funds by selling many of the businesses it had built over the previous decades.

A New York judge dismissed the suit, ruling that the US government was a simply a creditor and wasn’t guilty of “Napoleonic plunder” of AIG’s assets. But the case is still pending in a DC court. Lawmakers are already warning AIG not to even think about joining the suit.

Peter Eavis points out that the US, more than once, had to make the terms of its bailout less onerous: “the government could have made more, if it had chosen to.” But John Carney has stepped up to defend the indefensible. Greenberg has made a colorable claim that the US government violated both the rights of AIG’s shareholders and a Delaware court order intended to preserve those rights. Since AIG’s board exists to represent AIG’s shareholders, says Carney, it at least owes Greenberg a fair hearing.

Which is what Levine sees the board meeting to be about. AIG’s board, he writes, will politely pretend to listen to Hank Greenberg’s concerns about shareholders, and will then disregard them. “As long as this meeting is long and PowerPointy enough, they’re fine”. – Ryan McCarthy

On to today’s links:

The Fed
The effects of quantitative easing — now the answers start to matter – Mark Dow

Regulations
A Goldman team that’s “very much like a hedge fund” seems to be very much violating the Volcker Rule – Max Abelson
Basel regulators are forcing banks into repeating one behavior that led to the financial crisis – John Carney

Pivots
BofA “sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people” – DealBook
BofA’s mortgage settlement tally is now over $43 billion – David Benoit

Bad Ideas
Letting the payroll tax cut expire was a terrible idea; extent of terribleness unclear – Cardiff Garcia
A very specific analysis of the disaster that would come from going over the debt ceiling – Ezra Klein

Wonks
Are health care costs really slowing? – Sarah Kliff
End-of-life-care is not a driver of higher health care costs – Ezekiel Emmanuel
Considering scrip – Paul Krugman
The Keynesian multiplier may be high or low, but it doesn’t matter to the US right now – Noah Smith

Alpha
This may surprise you, but the world of managing money for Ivy League endowments is pretty clubby – Bloomberg

JPMorgan
Hedge fund that bet against JPMorgan in the Whale trade steals bank’s top sales exec – FT

Charts
The Regulatory Life Cycle: From crisis to thumb-twiddling – Lisa Pollack

RIP
Remembering Richard Ben Cramer – NYT

EU Mess
European unemployment rises again, hits 26% in Greece – Eurostat

Follow us on Twitter and Facebook. And, of course, there are many more links at Counterparties.

When JP Morgan’s London Whale blew up, one part of the collateral damage was the publication of a detailed Volcker Rule. The Whale was gambling JP Morgan’s money, and wasn’t doing so on behalf of clients — yet somehow his actions were Volcker-compliant. And when the blow-up revealed the absurdity of that particular loophole, the rule went back to the SEC for further refinement.

So we still don’t know exactly what will and what won’t be allowed under Volcker, if and when it ever comes into force. We do know, however, that Citigroup is selling off its internal hedge fund, Citi Capital Advisors. If by “selling off” you mean “giving away“: it’s spinning the fund out as an independent entity, to be owned 75% by its current employees. Citi will retain a Volcker-compliant 25% stake, and slowly reduce the $2.5 billion of its own money it has invested in the entity so that the managers can “diversify the client base away from Citi and to build a stand-alone firm”.

It’s incredibly difficult to value a hedge fund, especially a relatively small one without a long track record. The high-water point for such transactions was probably Citi’s acquisition of Vikram Pandit’s fund, Old Lane, in 2007. Old Lane managed $4.5 billion, and was sold for $800 million, but even then the markets appreciated that the buy was more of an “acqui-hire” of Pandit than a fair price for a young and volatile business.

A few years later, Citi was on the ropes and selling rather than buying; that’s when it unloaded its fund-of-funds, Citi Alternative Investments, to Skybridge Capital. Skybridge paid almost nothing up-front for the business, but agreed to remit a large chunk of the group’s management fees back to Citi for the first three years.

Bloomberg managed to find one consultant who valued Citi Capital Advisors, which manages about $3.4 billion, at $100 million. I, for one, wouldn’t buy in at that valuation: less than $1 billion of the assets under management constitute real money, as opposed to simply being a place where Citi parks a small chunk of its balance sheet. And as the Citi funds diminish, the chances of Citi Capital Advisors becoming a profitable standalone entity have to be pretty slim.

Which brings me to Multi-Strategy Investing, a small group of a dozen people within Goldman Sachs, who between them manage about $1 billion. As Max Abelson shows, MSI is unabashedly an internal hedge fund, concentrating on medium-term trades lasting a few months. (The idea is that if positions are held for longer than 60 days, that makes them Volcker-compliant.)

Abelson finds a lot of illustrious alumni of the MSI group; maybe the bank is keeping it on just for nostalgia’s sake. Because I can’t for the life of me see the point of it. Goldman Sachs has a trillion-dollar balance sheet; the $1 billion it has invested in MSI is basically a rounding error. And by the time you’ve shelled out annual bonuses to a dozen high-flying Goldman Sachs professionals, the contribution of MSI to Goldman’s annual profits has to be downright minuscule. (Let’s say the group generates alpha of 5%, or $50 million per year: that doesn’t go very far, split 12 ways at Goldman Sachs.)

Clearly, with a mere $1 billion under management, MSI doesn’t present Goldman with much in the way of tail risk. But by the same token, this really doesn’t seem like a particularly attractive business for Goldman to be in. As Abelson says, Goldman’s own CEO is adamant that the bank doesn’t make money trading for its own account: everything it does has to be for clients. Under that principle, MSI shouldn’t exist. And the profits from the group simply can’t be big enough to make it worth the regulatory and reputational bother.

Goldman should take a leaf out of Citi’s book, here, and spin MSI off as a standalone operation, if necessary retaining a 25% stake. If its principals can make a go of it, attracting real money from outside investors, great. If they can’t, no harm done. Alternatively, Goldman could just shut down MSI entirely, and put its valuable employees to work helping the bank’s clients, and making money that way. Either way, there doesn’t seem to be any point to keeping this small fund going as is.

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The central bankers in the Basel committee have suddenly decided to make Basel III a lot less restrictive and a lot less urgent.

The Basel III rules, intended to make the world’s big banks safer during crisis, were scheduled to take effect on January 1, 2015, but banks will now have an additional four years to fully meet Basel’s “Liquidity Coverage Ratio” [LCR]. Now, they will only have to to be 60% of the way there by 2015. Mervyn King, the outgoing head of the Bank of England, says that the “vast majority” of the 200 banks under Basel’s auspices are already in compliance with these less restrictive standards. (Felix has a comprehensive set of posts on multi-year battle over Basel here.)

Crucially, the new Basel broadens the list of what banks can hold as “high-quality liquid assets” as a buffer against the next crisis. Banks can now count certain high-rated corporate bonds, equities, and mortgage-backed securities toward their LCR.

The NYT’s Jack Ewing says this marks “the first time regulators have publicly backed away from the strict rules imposed by the Basel Committee in 2010.” Reuters, for its part, called the previous Basel liquidity standards “draconian”. One bank analyst said the new rules amounted to “a fairly massive softening”. Per Kurowski says the rules will help banks, but will help kill the real economy.

The new rules, Simon Nixon writes, will free up money for banks to use productively, and will mean they’ll need to hold fewer soveriegn bonds. This could mean bigger profits: Barclays may see its pre-tax profit rise by 4%. Mervyn King, the outgoing head of the Bank of England, told reporters: “Nobody set out to make [Basel] stronger or weaker, but to make it more realistic.”

Realistic or not, the central bankers on the Basel committee have shifted their focus. When Basel III arrived in 2010, it was a “quiet victory” — central bankers succeeded in passing tough new rules to make big banks safer. Now, those central bankers are no longer primarily worried about preventing banks from taking down the financial system. They’re back to their monetary policy role: As FT Alphaville suggested, they’re worrying about banks lending.  – Ryan McCarthy

On to today’s links:

TBTF
BofA to pay more than $10 billion to Fannie Mae, unloads mortgage servicing rights – DealBook
10 banks pay $8.5 billion to end foreclosure reviews – Reuters

New Normal
America’s prison population is shrinking — you can thank California – Wonkblog
Median pay for less experienced MBA grads: just $54,000 – WSJ

Unsolved Mysteries
No one really knows how much government debt is too much – The Economist

Ugh
Why the NYSE merger may hurt average investors – Stephen Gandel
There are 181,000 social media “gurus”, “ninjas” and “mavens” on Twitter – AdAge

Awesome
The year in corporate bullshit, “guff, cliche, euphemism and verbal stupidity – Lucy Kellaway

#MintTheCoin
Get ready to mint that coin – Paul Krugman
Rebranding the trillion-dollar coin – Steve Randy Waldman
The trillion-dollar coin is all fun and games until someone puts an eye out – Felix

Old Timey
Tom Wolfe is confused by Wall Street’s eunuchs – Newsbeast

Interesting Failures
Why infinite scroll failed at Etsy – Dan Nguyen

Crisis Retro
“Thank you, America” – AIG CEO Robert Benmosche

Bummers
“Profoundly unhappy” adolescents earn 30% less as adults – WSJ

Crisis Retro
“Thank you, America” – AIG CEO Robert Benmosche

Bummers
“Profoundly unhappy” adolescents earn 30% less as adults – WSJ

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Let’s be clear about this: no one’s going to mint a trillion-dollar platinum coin. Nor is anybody going to mint a million million-dollar platinum coins. But it would probably be stupid for anybody in the government to say that they’re not going to do it.

The trillion-dollar coin is the fiscal equivalent of the Flying Spaghetti Monster: a logical reductio ad absurdum designed to emphasize the silliness of an opposing position. For instance, if you don’t believe that churches should be tax-exempt, then you just claim that your entire family are Pastafarian priests, and that therefore all your investment income should be tax-exempt. Or rather you claim that you could claim that, but doing so would obviously be absurd; the logical implication is that failing to tax the investment income of, say, the Catholic church is equally absurd.

In this case, the absurdity to be pointed out is the debt ceiling. Everybody who’s ever been in charge of any country’s finances knows that the concept of a debt ceiling is profoundly stupid, self-defeating, and generally idiotic. And we discovered in 2011 that it can do very real harm. Back then, I hated the idea of the platinum coin:

Tools like the 14th Amendment or even crazier loopholes like coin seignorage would be signs of the utter failure of the US political system and civil society. And that alone could mean the loss of America’s status as a safe haven and a reserve currency. The present value of such a loss? Much bigger than $2 trillion.

This is the real problem with the main argument for minting a coin, which is that “yes, it’s a stupid gimmick, but so is the debt ceiling, and the debt ceiling is a lot more harmful than a coin would be”. That’s true, but it’s important to recognize just how damaging the platinum-coin move would be, all the same. It would effectively mark the demise of the three-branch system of government, by allowing the executive branch to simply steamroller the rights and privileges of the legislative branch. Yes, the legislature is behaving like a bunch of utter morons if they think that driving the US government into default is a good idea. But it’s their right to behave like a bunch of utter morons. If the executive branch failed to respect that right, it would effectively be defying the exact same authority by which the president himself governs. The result would be a governance crisis which would make the last debt-ceiling fiasco look positively benign in comparison.

There’s a reason why the proponents of the platinum-coin approach are generally economists, or at least economically-minded. The idea makes gloriously elegant economic sense, and attempts to shoot it down on economic grounds generally fail miserably. You can try a legal tack instead, but that doesn’t work much better: the coin is as logically robust as it is Constitutionally stupid.

No one in the executive branch has any real desire to mint a trillion-dollar coin — you can be sure of that. But the coin-minting advocates are OK with that: they just want to use the threat of the coin to persuade Congress that it should just go ahead and allow Treasury to pay for all the spending that Congress has, after all, already mandated. As a result, while no one intends to actually mint a coin, any statement to that effect would constitute unilateral disarmament in the war between the executive and the legislature.

But there are two problems with this approach. The first is that it’s a version of Hank Paulson’s famous dictum that “if you have a bazooka in your pocket and people know it, you probably won’t have to use it”. That wasn’t true for Paulson, and in general it’s not true of bazookas. In politics as in the markets, if you have a bazooka in your pocket, you’re likely to be backed into a position where you’re forced to use it, sooner rather than later.

The second problem is that what we’re talking about here has a kind of Cold War mutually-assured-destruction mentality: “don’t you dare try to force a debt default, because if you do, I’ll come out and render you entirely irrelevant with my platinum coin”. The nihilistic logic of the Cold War was brutal and scary at the time; but at least it was played by people who respected each others’ intellectual prowess. In this case, we’re basically talking about Barack Obama trying to bluff the House Republicans. And as any poker player knows, when you’re up against a very stupid opponent, you should never try to bluff.

The solution to the fiscal cliff crisis was to let the House Republicans overstretch, self-destruct, and render themselves powerless: that’s how to best deal with such people. There’s exactly zero chance that the House Republicans, faced with the Coin Threat, will suddenly turn logical and decide that they’re not going to play political games around the debt ceiling after all. Rather, the Coin Threat is a political game, played by the other side: it’s the executive branch bringing itself down to the House Republicans’ level.

If you believe that the country is best run by grown-ups, you can’t believe in #mintthecoin, because it simply isn’t a grown-up strategy. If you believe that the House Republicans behave in crazy and illogical ways, then you can’t believe in #mintthecoin, because the threat of minting the coin doesn’t work against someone who’s crazy and illogical. And if you believe that the best way to approach the debt ceiling is to try and abolish it altogether, then you can’t believe in #mintthecoin, because the entire strategy is based on the idea of keeping the ceiling where it is, and then trying to circumvent it.

So while #mintthecoin is an amusing intellectual exercise, no serious executive-branch politician should or will embrace it. Not unless he wanted to torpedo the international credibility of the United States just for the sake of some short-term political one-upmanship.

The world’s best art is not the world’s most expensive art. But artists like being rich just as much as the rest of us, and so there are a lot of ambitious artists out there, working the art world hard, making precisely the kind of art which appeals to the tiny group of global plutocrats willing and able to drop millions of dollars on a single contemporary artwork.

That’s fine, as far as it goes. But the problems start arising when art-for-global-plutocrats starts becoming broadly accepted as the best and highest form of art being produced today. It’s not: it’s just the most expensive, and the most celebrated. But drawing that distinction is very difficult, and probably pointless — at least in the art world.

In the food world, however, the good news is that things are different. The foodie equivalent of the trendy million-dollar artist is the chef with a $200 prix-fixe tasting menu featuring dozens of tiny courses. There’s even a globally-recognized league table: the higher you appear on the San Pellegrino list, the better (and more bankable) you are. Haute cuisine generally works on the same basis as haute couture: the latter is a loss-leader for perfume sales, while the former is a loss-leader for lucrative books, consulting contracts, and the like. Eventually, you can kick away the ladder entirely — the restaurant which always used to sit at the top of the list, El Bulli, has now closed, freeing up time for its global-superstar chef, Ferran Adrià, to make much more money elsewhere. While it’s always nice for a restaurant to make a profit by selling food, the big money comes from brand extensions, after you’ve become globally famous.

The economics of restaurants on the San Pellegrino list are very different from classical restaurant economics in other ways, too. Not only is narrow profit-maximization kicked down the list of priorities, but so is the cultivation of regulars. New York has more than its fair share of these places — Atera, Per Se, Brooklyn Fare, Blanca, Momofuku Ko, etc. But very few of them have regulars. Instead, they fill up with gastrotourists ticking the place off their list. This is most obvious at Eleven Madison Park, which has reinvented itself quite explicitly as a high-end New York tourist destination, complete with New York tour guides. And if you read John Colapinto’s profile of its chef, Daniel Humm, it’s clear that Humm is deeply invested in the San Pellegrino game, and is playing to win.

Corby Kummer, in his delicious Vanity Fair takedown of the whole tasting-menu phenomenon, describes his meal at Eleven Madison Park as “worse than bad”, and says that Humm “seems to be re-inventing himself to chase trends”. Kummer is far from being alone: the NYT’s Pete Wells came down hard on tasting menus back in October, and found that his piece struck a real chord with his readers. And then there’s Dana Goodyear’s examination of the lowest levels on the tasting-menu ladder. These are the small underground restaurants whose reach might exceed their grasp, but who can still persuade a certain class of diner to shell out large amounts of money to eat lots and lots of clever morsels:

Frizzell went out to the patio, where the guests were assembled at a long table. “This is nose-to-tail eating, in a vegetable fashion,” he said, presenting the peas. Several courses followed, meagre and mainly protein-free. At a certain point, even the hostess’s enthusiasm seemed to be growing forced. “It is totally amazing what you can do with my tiny kitchen!” she chirped, over a plate of red-cabbage juice that had been turned into what Frizzell described as a “fluid gel” thickened with ultratex, a tapioca starch. When a tray of bacon-infused whiskey cotton-candy pops, made by the bartender, came around, the diners snatched at them desperately. Then it was time for “nitrogen play.” Frizzell decanted the liquid nitrogen into a small bottle with red-bell-pepper coulis and whippets inside, and shook it wildly before shooting the contents into a bowl. Cold smoke tumbled out and rolled down the long table. “Red-bell-pepper Dippin’ Dots!” Frizzell announced triumphantly, spooning a pile onto every plate. They melted on my tongue—the ghost of nourishment. I thought of something the founder of the Web site Gusta had said about underground dining: “We liken it to going to a doctor. You don’t say, ‘This is the medicine I need.’ They tell you what you need. The chef tells you what you should be eating.” In this case, I was able to self-diagnose: what I needed was some food. I saw a gourmet truck on the way home, and stopped for a hot dog.

The point here is that the critics, wonderfully, are increasingly not buying what the chefs are selling. I personally swore off tasting menus after six hours and 20 courses at Moto in Chicago, which culminated in one of my dinner companions going so loopy that when she was presented with a syringe of something chocolatey at the end of the meal, the contents ended up in my ear rather than in her mouth. Naturally, that brief journey off-script was by far the most memorable part of the evening.

I’m not saying that there’s no place for these restaurants. There are enough international gastro-tourists in the world that the most successful of them will always be booked solid, long in advance. And there are enough ambitious chefs that there will always be a lot of competition to get into the top tier, to be mentioned in the same breath as superstars like Rene Redzepi, Grant Achatz, and Thomas Keller.

But as the number of courses escalates along with the prices at these places, the world of tasting-menu restaurants is increasingly becoming as inaccessible and irrelevant as the world of first-growth Bordeaux. It’s fine for the self-selecting few within its hermetically-sealed borders, but the rest of us are perfectly happy making do with the occasional cheaper morsel trickling down from Mount Olympus. We don’t have FOMO — fear of missing out — because we know the air up there is too thin in any case for the likes of us. We are the people who don’t think that every dish should tell a story, the people who don’t get bored with dishes after three bites, the people who do get bored with any meal after the first dozen courses or three hours, whichever comes first. And increasingly the food press is taking our side, rather than that of the self-selecting elite.

Would that the art press did likewise.

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This is the state of the hedge fund industry in 2012: The most profitable fund in the world underperformed a simple S&P index fund.

Steve Cohen’s SAC Capital, marred by insider trading investigations, made it to the top of Bloomberg Markets’ ranking of the most profitable hedge funds this year, not because of performance but because of fees. Instead of the usual 2 and 20 fee structure, SAC reportedly charges a 3% management fee and as much as 50% of its clients’ profits.

If you’re wealthy enough to invest directly in a hedge fund those fees are particularly grating: SAC was up 10% last year, Bloomberg reports, versus a 13.4% gain in the S&P. And that’s good, by hedge-fund standards. This year, Reuters reports, the average hedge fund returned just 3.17%.

2012 was a year when nearly everyone on Wall Street got it wrong:

Even the largest banks and most-successful investors failed to anticipate how government actions would influence markets. Unprecedented central bank stimulus in the U.S. and Europe sparked a 16 percent gain in the S&P 500 including dividends, led to a 23 percent drop in the Chicago Board Options Exchange Volatility Index, paid investors in Greek debt 78 percent and gave Treasuries a 2.2 percent return even after Warren Buffett called bonds “dangerous.”

On the whole, it’s been a terrible decade for hedge funds. The Economist notes that a “simple-minded investment portfolio” — 60% stocks and the rest in sovereign bonds — would have returned 90% over the last 10 years. Hedge funds, after fees, returned just 17%. Those paltry returns are increasingly hitting everyday investors: “Nearly two-thirds of the industry’s assets are now drawn from pension funds, endowments like the Nobel Foundation and other institutional investors, up from just 20% a decade ago.”

You’d think investors would, at some point, start figuring this all out. But according to Nathan Vardi, exactly the opposite is true. The long-term flow of cash into hedge funds, including money from retail investors, Felix wrote earlier this year, shows no signs of slowing down. — Ryan McCarthy

On to today’s links:

#MintTheCoin
Why the Treasury should mint a trillion-dollar coin to save us from the debt ceiling – Joe Weisenthal
No a $1 trillion coin is not legal – Kevin Drum
We must go off the platinum cliff – Josh Barro

Primary Sources
US adds 155,000 jobs in December, maddeningly in line with estimates – BLS
The curious predictability of the jobs report – Felix

Billionaire Whimsy
Endless panels and hundreds of millions of dollars later, Peterson-ism has failed – Dave Weigel

Long Reads
The master pickpocket whose work is being studied by scientists and the military – Adam Green

Wonks
Quantitative easing doesn’t lower interest rates. It raises them — Matt O’Brien
The end of economists’ imperialism – Justin Fox
We’re still waiting for an answer to the biggest question in macroeconomic theory – John Quiggin
The IMF’s top economist admits he misunderstood how austerity kills growth – Wonkblog

EU Mess
Spain has started draining its citizens’ social security fund to buy its own bonds – WSJ

Explainers
A really good explainer on how Obamacare will affect you – Aaron E. Carroll

Investigations
The SEC decides not to file insider trading charges against a former Buffett lieutenant – Dealbook

Oxpeckers
Andrew Sullivan: “There’s no sugar daddies anymore” in media – David Carr

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I’m fascinated by the economics of the Al Jazeera acquisition of Current TV, at an eye-popping price of roughly half a billion dollars. That’s about $12,000 for each of Current TV’s 42,000 nightly viewers. But of course as Liana Baker and Peter Lauria note, Al Jazeera isn’t interested in Current TV’s handful of viewers: this is “a pay-for-distribution play”, and what Al Jazeera is really buying is Current TV’s access to 40 million households. Looked at that way, the price is about $12.50 per possible/potential viewer.

The way that the economics of the cable-TV industry work, potential viewers can actually be worth much more than actual viewers. Current TV was reportedly receiving 12 cents per subscriber per month from cable TV channels — just under $60 million per year. That’s real money, and it helps to explain how Current TV could possibly have revenues of $100 million per year.

Why would cable companies pay Current TV more than $50 million per year, if almost none of their subscribers evinced any particular interest in watching it? Part of the answer is, simply, Al Gore: he turns out to have been extremely good at personally selling the Current TV service to cable companies and getting them to pay good money for it. Brian Stelter quotes one Current TV executive as saying that “when it came to distribution issues, he was always available to make that final call. He was always the closer.”

Gore’s pitch relied heavily on the idea that cable companies needed a “diverse set of news sources” — and he’s right about that. News is special, which is one reason why CNN can charge 57 cents per subscriber per month for its content, even as its ratings continue to plunge. A non-news channel with such low ratings could never ask for such sums, but if you’re a cable-TV provider, you basically can’t not offer CNN, which means you have to pay whatever Time Warner is asking.

An even more extreme example of the same phenomenon is CNN International — it’s a cash cow which almost nobody watches unless they’re in some far-flung hotel room. It doesn’t matter what the viewership is or what the ad revenue is. The important thing is that TV providers around the world all feel compelled to offer it.

Al Jazeera — clearly — doesn’t have the same kind of clout in the US that Al Gore has. It’s been trying for years to get onto cable lineups here, with no real success. While cable companies know they have to have Fox News (because it gets good ratings), and CNN (because it’s CNN), they need to be persuaded to buy Current TV, and they have no particular desire at all to have Al Jazeera. Foreign stations are, well, foreign: even the BBC has had real difficulty making serious inroads on the distribution front. Which is why Al Jazeera is setting up a whole new channel, called Al Jazeera America, targeted directly at a US audience.

But the bigger lesson here is that any media company which aspires to platform status needs news. Why did all those cable companies pay for Current TV? For much the same reason that BuzzFeed is aggressively hiring journalists. Back in September, David Holmes did a clever mashup, comparing BuzzFeed’s most-viewed posts with its best-reported posts. Needless to say, there was no overlap at all in the two. But both are crucially important to the success of BuzzFeed: the cross-subsidy is alive and well, and is being funded by aggressive venture capitalists for highly commercial purposes. BuzzFeed recently raised $19.3 million at a reported $200 million valuation — the news operation surely accounts for a significant chunk of that valuation, and not necessarily because of the traffic it drives.

Al Jazeera isn’t in this business for profit: this is more about projecting soft power into the world, demonstrating that the Arab countries can produce valuable, first-rate, uncensored journalism. For the prize of two Cézannes, Al Jazeera is buying the Arab world a significant measure of credibility in the single most important country on the planet. Or it’s attempting to, anyway.

Al Jazeera probably won’t be able to persuade most of the cable companies to pay 12 cents per subscriber per month. It doesn’t care much about that; it would happily take the slots on offer even if they generated no revenue at all. Indeed, it might even pay the cable companies, in the first instance, if it needs to do so in order to keep its potential viewership high. The important thing is that America is given the opportunity to discover what Al Jazeera is capable of. Then, if and when it starts getting traction, it will be Al Jazeera America which will have the upper hand in any future negotiations. Because there’s something very special about high-quality news, and the cable companies know it.

I have very little time for conspiracy theories when it comes to the monthly payrolls report. But there is something odd going on right now, as Justin Wolfers noted this morning:

Given the sampling error surrounding the monthly payrolls numbers, it’s astounding just how consistent recent data have been.

— Justin Wolfers (@justinwolfers) January 4, 2013

Here’s the chart. What I’m showing here is not the total number of people on US payrolls each month. And I’m not even showing the change in the total number of people on US payrolls each month. Instead, I’m showing the second derivative: the change in the change in the total number of people on US payrolls each month.

Every month, economists and traders look first at the headline jobs growth number: this month, it’s 155,000. Last month, it was 161,000. Which means the difference is just 6,000. That difference, from month to month, is what I’m charting here. Sometimes the difference is positive and sometimes it’s negative, but if you just look at the magnitude of the change, then over the past two years, the typical number has differed from the previous number by an average of 51,000, with a median of 30,000. And over the past five months, the changes have been much smaller still.

It’s entirely reasonable to look at these numbers and conclude that the labor-market recovery is “steady-as-she-goes”. Each month, we get another 160,000 new jobs, month in, month out, with some very modest month-to-month variation in the number.

But here’s the problem. Let’s say that the US economy was adding exactly 160,000 new jobs every month, with no variation at all in that number. In that case, what would we expect the monthly payrolls report to show? It would not show an exact 160,000 print every month, because there are errors in the data, as the BLS technical note does a very good job of explaining.

The errors fall into two buckets: “sampling errors” and “nonsampling errors”. The sampling errors are basically just statistical noise: because the BLS doesn’t survey every employer in the country, it has to extrapolate from a representative sample. But no sample is perfectly representative. As a result, the BLS says, the payrolls number will be off by more than 100,000 employees 10% of the time — more than once a year, on average. (The BLS puts it in stats-speak: “the 90% confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000.”)

Then, on top of the sampling errors come the nonsampling errors. Some survey returns are incomplete, for instance; more importantly, the BLS doesn’t have a firm grip on how many new firms were created in any given month, and how many closed.

Finally, there are various adjustments that the BLS makes to the numbers before they’re published — adjustments designed to make the numbers better, but which in theory could make them worse. The most notorious is the birth-death adjustment, designed to model those new firms being created and old ones dying; Barry Ritholtz, for one, has been a consistent critic of this adjustment for many years now. And then there are the seasonal adjustments (everybody looks at the seasonally-adjusted figures in this series). Those adjustments, shrouded in mystery, change all the time:

For both the household and establishment surveys, a concurrent seasonal adjustment methodology is used in which new seasonal factors are calculated each month using all relevant data, up to and including the data for the current month. In the household survey, new seasonal factors are used to adjust only the current month’s data. In the establishment survey, however, new seasonal factors are used each month to adjust the three most recent monthly estimates. The prior 2 months are routinely revised to incorporate additional sample reports and recalculated seasonal adjustment factors.

Now it’s important to note that the seasonal adjustments are not designed to compensate for either sampling or non-sampling errors. But there is something suspicious about how consistent the data series is — it’s the same kind of suspicious consistency that first tipped Harry Markopolos off to Bernie Madoff. The sampling errors alone should make the payrolls data series significantly more volatile than we’ve been seeing of late, and when you layer on non-sampling errors, the volatility should be even bigger.

I’ve written about this before. In June 2008, for instance, I blogged:

I’m still not convinced there isn’t something very weird going on here. The series just doesn’t seem to behave like one where the margin of error is 104,000. Is there some kind of massaging going on at the BLS before the data is released? Is the margin of error being overestimated?

These are reasonably important questions, because volatility in the monthly payrolls report can cause enormous market swings. Partly because the number is normally so predictable. Why is it so predictable, when all the rules of sampling and statistics say that it shouldn’t be? One possibility lies in those seasonal adjustments: maybe the BLS number-crunchers somehow end up adjusting not only for seasonal variations but also for non-seasonal sampling errors. Or maybe it’s something else entirely. But either way, I’d be weirdly happier if the payrolls number were a lot more volatile than it is.

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The minutes from the December meeting of the Fed’s Open Market Committee came out today and managed to include everyone’s least favorite word: “divided”.

At the same time that the Fed made the unprecedented move to tie monetary policy to specific unemployment targets — promising to keep rates low until unemployment fell below 6.5% — “several” members of the committee wanted to end or slow the central bank’s asset purchasing program “well before” the end of the year. Joe Weisenthal calls today’s news the “first real signal of an eventual return to normal policy”.

James Hamilton has a great look at the Fed’s $3 trillion balance sheet, through its various asset-buying programs since the crisis — QEs 1-3, if you will. The takeaway: the unprecedented programs may have helped employment “a little” and done no harm to inflation. (Bill Gross, in seemingly his millionth such warning, thinks this “inflation dragon” is flying our way right now).

By almost every account, the fiscal policy has been even more heterodox. The fiscal deal just passed by Congress goes against just about every major school of economic thought and does nothing for unemployment or the deficit. Cullen Roche says the deal will cut about 1.3% from 2013 GDP; Brad DeLong puts it at more like 1.75%. To Chris Dillow, this all means the basic post-war role of politicians in providing economic certainty is gone. To Kevin Logan, HSBC’s chief economist, Congress is now the biggest risk to the economy.

Justin Fox says fiscal showdowns won’t go away anytime soon — it’ll take a long while to wash the anti-government ranks out of the Republican Party. As for the Fed, Cardiff Garcia smartly warns us not to freak out: the Fed’s asset purchases are intended to juice the “near-term momentum of the economy”. If the economy sours again, the Fed could always just begin its largely unproven, possibly bubble-causing asset-purchasing program all over again. — Ben Walsh and Ryan McCarthy

On to today’s links:

Departures
Tim Geithner has a plan to avoid the debt ceiling debate – Bloomberg

Must Read
The unexpected culprit behind America’s crime problem: lead exposure – Kevin Drum

Awesome
The macroeconomics of Middle Earth – Worthwhile Canadian Initiative

The Oracle
Warren Buffett is building the world’s biggest photovoltaic solar project – Bloomberg

TBTF
What’s inside America’s banks? Not even the most sophisticated investor knows – Frank Partnoy and Jesse Eisinger
Basel III includes 78 calculus regulations, 509 pages and a whole lot of conflicting rules – Yalman Onaran
You can’t regulate with nostalgia – Felix

Your Bottomless Inbox
Email now sucks so much that by 2020, it will be competing with the post office – Quartz

Taxmageddon
The fiscal cliff negotiations in one chart – Dylan Matthews
The CEO push on a fiscal cliff paid off, at least in corporate tax breaks – Tim Fernholz

Wonks
American does have a mediocrity problem, but corporations aren’t it – Noah Smith

New Normal
First amendment rights for drug companies – Mina Kimes

Oxpeckers
Andrew Sullivan’s sales pitch – Foster Kamer
Buzzfeed raises $19 million – and it’s reportedly still sitting on the $15 million it raised a year ago – Ad Age

Stock and Flow
Portland drinks so much coffee it has caffeinated the sea – National Geographic

Contrasts
Zipcar: Entrepreneurial genius, public-company failure – WSJ

Legalese
Meet the patent troll who wants to be paid $1,000 every time you use a scanner - Ars Technica

Fails
Antivirus products are bad a stopping viruses – NYT