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September 30, 2012

Dr. Szasz, non-psychiatric physician

Dr. Szasz argued against coercive treatments, like involuntary confinement, and the use of psychiatric diagnoses in the courts, calling both practices unscientific and unethical. He was soon placed in the company of other prominent critics of psychiatry, including the Canadian sociologist Erving Goffman and the French philosopher Michel Foucault.

Edward Shorter, the author of "A History of Psychiatry: From the Era of the Asylum to the Age of Prozac" (1997), called Dr. Szasz "the biggest of the antipsychiatry intellectuals."

"Together," he added, "they tried their hardest to keep people away from psychiatric treatment on the grounds that if patients did not have actual brain disease, their only real difficulties were 'problems in living.' "

This attack had some merit in the 1950s, Dr. Shorter said, but not later on, when the field began developing more scientific approaches.

To those skeptical of modern psychiatry, however, Dr. Szasz was a foundational figure.

September 29, 2012

Poverty is not the issue

Democrats have concluded that getting enough votes on Nov. 6 precludes taking policy positions that alienate middle-class whites. In practice this means that on the campaign trail there is an absence of explicit references to the poor -- and we didn't hear much about them at the Democratic National Convention either.

Republicans, in turn, see taking a decisive majority of white votes as their best chance of winning the presidency. The 2012 electorate is likely to be 72% white, according to a number of analyses. In this scenario, Republicans need to get at least 62 percent of the white vote to win, and Democrats need to get 38 percent or more of the white vote.

Elijah Anderson, a sociologist at Yale and the author of several highly praised books about race and urban America, including "The Cosmopolitan Canopy," organized the symposium. When I asked him about the Democrats' problems in addressing poverty, Anderson wrote back in an email:

Apparently, the Republicans have backed the Democrats, and President Obama in particular, into the proverbial racial corner. It is a supreme irony that Obama, the nation's first African-American President, finds himself unable to advocate for truly disadvantaged blacks, or even to speak out forthrightly on racial issues. To do so is to risk alienating white conservative voters, who are more than ready to scream, "we told you so," that Obama is for "the blacks." But it is not just the potential white voters, but the political pundits who quickly draw attention to such actions, slanting their stories to stir up racial resentment. Strikingly, blacks most often understand President Obama's problems politically, and continue to vote for him, understanding the game full well, that Obama is doing the "best he can" in what is clearly a "deeply racist society." It's a conundrum.

Thomas B. Edsall, a professor of journalism at Columbia University, is the author of the book "The Age of Austerity: How Scarcity Will Remake American Politics," which was published earlier this year.

The issue of race helps to explain another development in academia as well as in the public debate: the near abandonment of the once powerful tradition of exposing the exploitation of the poor.

Matthew Desmond, an assistant professor of sociology at Harvard, another speaker at the Yale symposium, described the extensive history of landlords, lenders and employers profiting from the rent and labor of slum dwellers. Desmond posed a question:

If exploitation long has helped to create the slum and its inhabitants, if it long has been a clear, direct, and systematic, cause of poverty and social suffering, why, then, has this ugly word -- exploitation -- been erased from current theories of urban poverty?
Instead, Desmond argued, contemporary urban poverty research

pivots upon the concept of a lack. Structural accounts emphasize the inner city's lack of jobs, social services, or organizations. Cultural accounts emphasize the inner city's lack of role models, custodial fathers, and middle-class values. Although usually pitted against one another, structural and cultural approaches share a common outlook: that the inner city is a void, a needy thing, and, like supplies lowered into the leper colony, that its problems can be solved by filing the void with more stuff: e.g., more jobs, more education, more social services.
This approach, Desmond contends, results in the misjudgment that proposals to lessen poverty by raising the minimum wage or improving welfare benefits would be sufficient. Not so, says Desmond, who spent months exploring evictions of the poor -- white and black -- in Milwaukee: "In a world of exploitation, such an assumption is anything but obvious."

When Desmond began his Milwaukee fieldwork, he

wondered why middle- and upper-class landlords would buy and manage property in some of Milwaukee's roughest neighborhoods. And the end of my fieldwork, I wondered why they wouldn't. As Sherrena [Tarver, one of the landlords he spoke to] would tell me the first time we met, "The 'hood is good. There's a lot of money there.... A two bedroom is a two bedroom is a two bedroom. If it's nice enough, and the people are O.K. with their living arrangements, they're gonna take it. They are at our mercy right now. They have to have a place to stay.

September 28, 2012

Shocker: promises of drenchings of blood, vomit, diarrhea and pus.

"Conditions in society are shocking, and art really does become a mirror to society in that way," said the performance artist Karen Finley, who became a national symbol for shock art during the early 1990s battles over public funds for controversial art. And sometimes that mirror turns into a magnifying glass.

Such work may seem to stretch art's immunity plea -- its argument that "we are only reflecting the brutality of the world, and your complicity in it" -- past the breaking point, conveniently projecting its own exploitive tendencies onto the viewer. In "The Art of Cruelty: A Reckoning" (2011), the critic Maggie Nelson questioned the lingering hold of what she called Modernism's "shock doctrine," summed up for her in the Austrian film director Michael Haneke's stated desire to "rape the audience into independence."

Not that Ms. Nelson, who teaches at California Institute of the Arts, dismisses the value of confrontation. Art still needs to "say things the culture can't allow itself to hear," she said. "But all shock is not created equal," she continued. "Once the original 'ugh' is gone, you've got to look at what the next emotion is."

"If you could think of something that would get an NC-17 rating with no sex or violence," he said, "you would have the most radical movie of the year."

-- John Waters

The filmmaker John Waters began his 1981 autobiography, "Shock Value," with the declaration that having someone vomit while watching one of his movies was "like getting a standing ovation." But mere shock for shock's sake, he said recently, is "deathly."

"If you're shocking by subject matter alone, it's not enough, and it never was enough," he said. "It's easy to shock, but it's much harder to surprise with wit."

To him the most shocking thing about "Pink Flamingos," his 1972 exploitation classic that depicted the drag queen Divine gleefully eating dog feces, was the fact that people laughed. "It was a commentary on censorship," he said. "It was about what was left once 'Deep Throat' became legal."

To ask if art can still shock is quickly to invite another question: Shock whom, and where? Connoisseurs of the highbrow jolts delivered, say, by European movie directors like Lars von Trier and Gaspar Noé (whose "Irreversible" assaulted audiences with a nine-minute rape scene) might find themselves shocked at the guilt-free pleasure taken by fans of the torture-porn "Saw" franchise. And violence that might seem humdrum at the multiplex might seem shocking in a live theater, to say nothing of an opera house.

"There are a thousand different audiences," said Vallejo Gantner, the artistic director of Performance Space 122 in the East Village. "At 'The Book of Mormon' the shock is all part of the fun. But it's much harder to shock a downtown theatergoing audience."

A "Rite of Spring"-style riot, Mr. Gantner added wryly, is "every presenter's dream." But if such melees are rare, plenty of artists succeed in causing deep discomfort today.

September 27, 2012


"Almost" mollifies certainty. In butcher's language, it tenderizes certainty. It is anti-certainty, anti-conviction and, by definition therefore, anti-omniscience. Authors use "almost" to avoid stating an outright fact, as though there were something inauthentic, dishonest, unfinished, undecided or even unwholesome -- some might say repulsive, tacky, snub-nosed, too direct -- in qualifying anything as definitely a this or a that.

André Aciman, author, most recently, of "Alibis: Essays on Elsewhere." He teaches at the CUNY Graduate Center and is the director of the Writers' Institute.

September 26, 2012

Poll: up to $500k still middle class

President Obama and the Democratic Party are targeting families earning $250,000 or more for higher taxes and Republicans accuse them of fomenting class warfare.
In the context of that debate, likely voters were asked what income level would make a family wealthy.

For the middle class, wealth begins at $500k or $1 million.

Almost 40 percent of people said that threshold was reached at a minimum $500,000 of annual income. Nineteen percent set the "wealthy" level at $500,000 and 20 percent put the bar above $1 million.

By contrast, 31 percent of people said a family earning $250,000 a year is wealthy, 19 percent said $100,000 was the threshold, and 7 percent said $50,000.

The national debate over wealth intensified last week when Obama challenged Republicans to pass legislation extending Bush-era tax rates only for households earning less than $250,000.

Fewer than 2-in-5 likely voters (37 percent) think they can ever become rich.

The findings suggest pessimism about the possibility of upward mobility as economic growth remains weak and jobs scarce.

The poll, conducted by Pulse Opinion Research among 1,000 likely voters, has a 3 percentage point margin of error.

It shows voters trust Republicans and GOP candidate Mitt Romney more on taxes than Democrats and Obama, even though they support the president's quarter-million dollar cut-off.

Asked which political party people "trust more" on taxes, 43 percent said Republicans and 36 percent said Democrats; 46 percent said they trusted Romney more while 42 percent believed Obama is more trustworthy on taxes.

Views diverged based on income levels, with voters earning between $40,000 and $75,000 strongly preferring Romney over Obama.

Among people earning between $40,000 and $60,000, 48 percent trust Romney more compared to 39 percent for Obama. People earning between $60,000 and $75,000 trust Romney more than Obama by a 34-point margin, 61 percent to 27 percent.

The president polled better among voters earning more than $100,000, with 51 percent saying they trusted him and 44 percent preferring Romney on taxes.

The Internal Revenue Service, in statistics from the 2009 tax year, said it took $343,927 in annual income to be in the top 1 percent of tax filers and $112,124 to be in the top 10 percent.

September 25, 2012

Dating markets and the dynamics of mate selection: sheng nu

I'm pretty fascinated with dating markets and the dynamics of mate selection. (One of my favorite activities, in fact, is looking up OkCupid profiles of people I know in order to test the efficacy of OkCupid's matching algorithm. In related news, I am creepy and need a life and should probably be satisfied by the data analysis contained in the OkCupid blog.) On one hand, dating markets are super romantic and lovey dovey and whatnot, but, on the other hand, they are matching markets like any other- in reality, dating markets aren't that different from labor markets (where employers are trying to find compatible workers and vice versa) except that, with labor markets, it's more clear who is the buyer and who is the seller. (There's got to be a joke in there somewhere.)

It's not surprising, then, that economists sometimes get involved with studying the inner workings of dating markets- just take a look at Marina Adshade's Dollars and Sex column, for example. But what happens when economists start to play cupid more directly?

-- Jodi 'with models ' Beggs

More: Steve Landsburg and Foreign Policy.

From the comments:

I get a chuckle when the 4'11" woman states she wants men 6'2" and taller. Then again, as a 5'8" guy, I am amused that it is socially acceptable for a women to request a tall mate, but I'm consider a cad if I want her buxom. Both are determined by DNA (and I can't change the one she cares about)

From Foreign Policy:

Wu Di, a contributor to China's Cosmopolitan and author of an alluring new book, I Know Why You're Left. The poised, professional crowd, outfitted in black blazers, leather boots, and trendy thick-framed glasses, was composed mostly of women in their mid-20s to mid-30s -- prime Cosmo readers and all there waiting patiently to hear Wu, who typically charges $160 an hour for "private romance counseling," explain their surprising plight: being single women in a country with a startling excess of men.

When at last she sauntered to the front of the room, microphone in hand, Wu, a pert, married 43-year-old who resembles a brunette Suze Orman (and whose chief advertised credential, it turns out, is an MBA from the University of Houston), surveyed her audience. Then she broke out into a practiced grin and, in the relentlessly chipper staccato common to Chinese public speakers, launched into her talk: a mix of sisterly homily, lovemaking tips, and economics lecture. It's unrealistic to expect that you will be madly in love with one person forever, she warned, or even that passion can be the right guide to marriage.

Leta Hong Fincher, a contributor to Ms. magazine and a Ph.D. candidate in sociology at Tsinghua University, told me. Why else, she asks, would the government-backed All-China Women's Federation take pains to conduct an exhaustive, 30,000-household survey asking about attitudes toward sheng nu? "This derogatory term has been aggressively disseminated by the Chinese government," she points out. According to a state media report on the survey, "See What Category of 'Leftover' You Belong To," the All-China Women's Federation assigned young single women such hapless labels as "leftover fighters" (ages 25 to 27), "the ones who must triumph" (ages 28 to 30), and "master class of leftover women" (35 and over). The takeaway: Get worried, and get married. Or, as Fincher wrote for Ms.: "If you want to stand a snowball's chance in hell of ever getting married in this country, don't demand too much from your man."

The black version ( Ralph Richard Banks, Stanford professor of family law):

This crisis in the black "relationship market", as Mr Banks calls it, starts with a "man shortage". About one in ten black men in their early thirties are in prison. As a group, black men have also fallen behind in education and income, just as black women have surged ahead. Two black women graduate from college for every black man. As these women rise into the middle class, the men stay in the lower class, becoming less compatible.

Many black women respond by "marrying down, but not out," as Mr Banks puts it. But that makes bad marriages. Two out of every three black marriages fail, about twice the rate of white marriages.

The real problem is the behaviour of those few black men who are considered good catches. They often stay unmarried for the opposite reason: they have too many options. As one man told Mr Banks: "If you have four quality women you're dating and they're in a rotation, who's going to rush into a marriage?" Even black men who nominally commit to one woman are five times as likely as their white counterparts to have others on the side.

One way or another, many black women thus become, or stay, single (as two of Mr Banks's three sisters are). As one woman tells him: "We focus on our careers, our friends, go back to school, whatever. We fill our lives with other things."

September 24, 2012

Joe the Peacock embraces the outcast life

We all went to school and hated everyone because they didn't understand us. We dealt with the bullying and the isolation and the feeling that we were the weird ones. You want to know what's weird? Spending hundreds of dollars on clothes and shoes and purses that everyone else thinks is cool. Spending hours of your life doing things that everyone else is doing because it's cool. Liking the bands that everyone else likes because you're a loser if you don't.

You want to know what's weird? Hiding who you are just to have the company of people you don't even like.That's weird.

September 23, 2012

Repartee and riposte of gamers: fat ugly or slutty ?

fatuglyorslutty.com documents the banter of gaming enthusiasts.

Jesting and joshing, in online raillery, the language is documented.

September 22, 2012

Cash-in refinancing tames Jumbo mortgages to conforming

Jumbo mortgages, also called nonconforming loans, exceed $625,500 in high-cost areas like New York. Unlike conforming mortgages, they do not meet specific guidelines of Fannie Mae and Freddie Mac, which repurchase loans and resell them to investors. Because lenders assume more risk, interest rates for nonconforming loans are higher than for conforming.

These days the spread between conventional and nonconventional is 0.5 percentage points, on average, according to data from HSH.com, though if the jumbo loan was taken out during the financial crisis of 2008, it could have been up to 1.8 percentage points more.

To refinance out of a jumbo loan, most borrowers will have to put in extra money -- sometimes $100,000 or more -- to decrease the balance to below $625,500, or $417,000 in other parts of the country. Some, though, may see this as a sound investment.

Cash-in refinancing has remained popular as homeowners work to cut their debt levels. Some 23 percent of homeowners refinancing in the second quarter decreased their mortgage balances, according to Freddie Mac; in the fourth quarter of last year it was 47 percent. The agency provides a guide for consumers on its Web site.

Sheila Walker Hartwell, the owner of Hartwell Planning, a financial planner based in Manhattan, says homeowners with a good financial foundation could greatly benefit by moving to a conventional mortgage from a jumbo. She provided one scenario in which a couple pays in $75,000 when they refinance a $700,000 mortgage, and save at least $5,900 a year on interest based on a 0.33 percentage point reduction in their interest rate. They would need to earn almost 7.5 percent a year on that money to net the same amount from savings or investments, she said.

September 21, 2012

Electronic danse music (EDM) invades Hollywood scores and soundtracks

Electronic musicians have scored movies for years. Recent examples include the Chemical Brothers for "Hanna" in 2011, Daft Punk for "Tron: Legacy" in 2010 (also directed by Mr. Kosinski) and Trent Reznor and Atticus Ross for "The Social Network," for which they won an Academy Award. However, artists like Skrillex, Kaskade and M83 have more trendy momentum than their predecessors did during their projects. By including them, the movies get a quick infusion of youthful relevance, while the musicians court a broader mainstream audience and receive a significant salary.

Skrillex, whose real name is Sonny Moore, composed his score for "Spring Breakers" while on tour, using his laptop, much as he does for his albums. He said he watched early cuts of scenes from the movie before creating the score; his initial reaction to the film was that "it has a lot of tension, so there's a lot of that mixed with the melody," he said. He used live guitars and vocals performed by his girlfriend, the British pop singer Ellie Goulding, and he described the score -- which he declined to play because he had not finished it -- as a distilled version of his dance music, which took out all the upbeat parts, emphasizing melody, "leaving the pretty parts, leaving the sad parts."

Mr. Korine said of Skrillex and "Spring Breakers": "He is of the generation, and it is in him. The culture and that idea, the violence and the emotion and the aggression and the beauty -- it is all in him and in the music. It was pretty natural and pretty awesome to watch him tap into that with the characters and the story, the kind of culture that it represents."

September 20, 2012

Breaking: Krugman opposes Republican economic plan

Mr. Ryan, as you may recall, has positioned himself as an icon of truth-telling and fiscal responsibility, while offering policy proposals that are neither honest nor responsible. He calls for huge tax cuts, while proposing specific spending cuts that, while inflicting immense hardship on our most vulnerable citizens, would fall far short of making up for the revenue loss. His claims to reduce the deficit therefore rely on assertions that he would make up for the lost revenue by closing loopholes that he refuses to specify, and achieve further huge spending cuts in ways that he also refuses to specify.

But didn't the Congressional Budget Office evaluate Mr. Ryan's plan and conclude that it would indeed reduce the deficit? I'm glad you asked that. You see, the budget office didn't actually evaluate his plan, because there weren't enough details. Instead, it let Mr. Ryan specify paths for future spending and revenue, while noting -- in what sounds to me like a hint of snark -- that "No proposals were specified that would generate that path."

So Mr. Ryan basically told the budget office to assume that his plan would slash the deficit, then claimed the resulting report as vindication of his deficit-slashing claims. Sorry, but that's the policy equivalent of sneaking into a marathon near the finish line, then claiming victory.

-- Krugman

September 19, 2012

Financial crisis history lesson: SEC's oversight of the financial sector, and did not suddenly permit a dramatic increase in leverage.

While most people welcome leverage limits as the just consequence of Wall Street's greed, and conclude that we will be safer if these businesses are run more prosaically, there is a real danger that we have focused on the wrong problem, and will condemn our once enviable capital markets to a period of bland ineffectiveness. While lower leverage would certainly provide more of a margin against the inevitable future errors of Wall Street executives, hard limits on risk-taking might also lead to stifled innovation and slow economic growth. Would Michael Milken, at Drexel Burnham, still have created the junk-bond market--or Lewis Ranieri, at Salomon Brothers, the securitization market--if the Dodd-Frank law or the Volcker Rule had been around to curb their firms' ability to take risk?

The spread and evolution of the idea that the financial crisis was caused by a giant increase in leverage, enabled by the SEC, bears a passing resemblance to the old-fashioned, elementary-school game of telephone. While the change to the SEC's so-called net-capital rule in 2004 was plenty esoteric, in the main, it did not allow big securities firms to take on more leverage. The SEC did two things in 2004: First, it assumed the added responsibility of regulating Wall Street's larger holding companies--as opposed to just the broker-dealer subsidiaries within them. That's where more and more funky and risky assets, such as derivatives and mortgages, had been housed over the years. Second, the SEC required the holding companies to report their capital adequacy in a way that was consistent with international standards, and to discount their assets for market, credit, and operational risks. Clearly, the SEC did a poor job of monitoring Wall Street once it obtained this increased regulatory authority. But the rule change increased rather than decreased the SEC's oversight of the financial sector, and did not suddenly permit a dramatic increase in leverage.

Yet that's not how the rule change got interpreted. In the aftermath of the collapse of Bear Stearns, in March 2008, people were eager to know how a company that had thrived for 85 years, and that had $18 billion in cash on its balance sheet, could evaporate in a week's time. Enter Lee Pickard, a former director of the SEC's trading-and-markets division and one of the architects of the net-capital rule in 1975. In an August 2008 essay in American Banker, Pickard lambasted the 2004 change, which he believed had allowed Bear Stearns to incur "high debt leverage" without "substantially increasing [its] capital base." He argued that the original net-capital rule required securities firms to discount, or "haircut," the value of their assets depending on the assets' perceived risk, and that it limited the amount of debt they could incur "to about 12 times [their] net capital." After the SEC's 2004 rule change, he wrote, the large securities firms were permitted to avoid the haircuts and the limitations on indebtedness. According to Pickard, "The losses incurred by Bear Stearns and other large broker-dealers" were caused "by inadequate net capital and the lack of constraints on the incurring of debt."

-- William D. Cohan

Pickard's criticism appealed to journalists eager to understand the causes of the crisis. On September 18, 2008, The New York Sun ran an article summarizing Pickard's assertions and quoted him as saying "The SEC modification in 2004 is the primary reason for all of the losses that have occurred." The SEC's trading-and-markets division tried to refute Pickard's critique in a little-read appendix to a report issued on September 25 on the collapse of Bear Stearns. "[Pickard] says that broker-dealers were formerly subject to a leverage ratio limit of 12x net capital," the commission wrote, but they "were not."

Nonetheless, the idea kept picking up steam. At the end of September, TheNew York Times began a series about the causes of the financial crisis. One headline blared: "Agency's '04 Rule Let Banks Pile Up New Debt." On December 5, the Columbia Law professor John Coffee added his imprimatur. In the New York Law Journal, Coffee wrote of the 2004 rule change, "The result was predictable: all five of these major investment banks increased their debt-to-equity leverage ratios significantly in the period following" the change. Around the same time, Coffee's esteemed colleague, Joseph Stiglitz, writing in Vanity Fair, described five key "mistakes" that had helped cause the financial crisis. Sure enough, the 2004 rule change got prominent play. And for the first time, Stiglitz explicitly mentioned the extent to which the leverage ratios had increased--"from 12:1 to 30:1, or higher," he wrote, allowing the banks to "buy more mortgage-backed securities, inflating the housing bubble in the process." The idea that the SEC's rule change had allowed leverage to balloon now had the backing of a Nobel Prize winner.

On January 3, 2009, Susan Woodward, who was the SEC's chief economist from 1992 to 1995, spoke at the American Economic Association. Her slides repeated Pickard's thesis and used the same numerical ratios that Stiglitz had used. One of her fellow panelists that day was Alan Blinder, a former vice chairman of the Board of Governors of the Federal Reserve System and an economics professor at Princeton.

Three weeks later, Blinder wrote an opinion column for TheNew York Times about the "six errors on the path to the financial crisis." Error No. 2, Blinder wrote, was "sky high leverage" enabled by the 2004 rule change. He, too, noted how securities firms' leverage had grown, this time to 33-to-1, from 12-to-1. "What were the S.E.C. and the heads of the firms thinking?" he wondered. Blinder's column firmly established the conventional wisdom, which proved increasingly difficult to dislodge.

BOTH STIGLITZ AND Blinder were right to point out that Wall Street was highly leveraged before the crash, on the order of 33-to-1 or more. But the truth is that in recent decades, Wall Street firms have almost always been highly leveraged. For instance, according to a 1992 study by the U.S. General Accounting Office (now the Government Accountability Office), the average leverage ratio for the top 13 investment banks was 27-to-1 midway through 1991 (up from 18-to-1 in 1990). A subsequent GAO report, in 2009, noted that the big Wall Street investment banks had higher leverage in 1998 than in 2006. According to SEC filings, in 1998, the year before it went public, Goldman Sachs was leveraged at nearly 32-to-1, while in 2006 it was leveraged at 22-to-1. In 1998, Bear Stearns's leverage was 35-to-1; in 2006, its leverage was 28-to-1. Similar patterns applied at Merrill Lynch and Lehman Brothers. To be sure, leverage has fluctuated over time: In the early 1970s, for instance, it was generally below 8-to-1. But in the 1950s, it sometimes exceeded 35-to-1.

Of course, even a dollar of debt is too much if you are clueless about how to manage risk. And with one or two notable exceptions (Goldman Sachs and JPMorgan Chase among them), by the time 2008 rolled around, risk management on Wall Street had become a farce, with risk managers being steamrolled by bankers, traders, and executives focused nearly exclusively on maximizing annual profits--and the size of their annual bonuses. Yet there was a long era--roughly between 1935 and the late 1980s--when Wall Street's ability to manage risk was one of its singular successes, bringing its partners and executives great wealth, making its firms the envy of the world, and helping to raise the standard of living for most Americans by making capital available to businesses large and small alike. What changed was not so much the leverage, but the attitude toward risk.

In December 2010, at the Federal Reserve Bank of Chicago, Goldfield gave a presentation about the misperception. As anyone could have, Goldfield had dug out the historical financial statements of the Wall Street firms--on file with the SEC--and made the calculations himself. He found that Wall Street's leverage ratio was never remotely close to 12-to-1 in 2004. On slide after slide, Goldfield wrote of the alleged increase in financial leverage brought on by the rule change: "It didn't happen."

A breakthrough, of sorts, in the debate came last October, when Andrew Lo, an economics professor at the MIT Sloan School of Management, wrote a paper that was later published in the Journal of Economic Literature, in which he reviewed 21 books about the financial crisis written by an array of scholars and journalists (and including House of Cards, my book about the collapse of Bear Stearns). Many of the books described the rule change and its impact. After parsing them, Lo observed that the authors could not even agree on what caused the crisis--like the role the SEC's 2004 rule change played in financial leverage, for instance.

"If such sophisticated and informed individuals can be misled on a relatively simple and empirically verifiable issue, what does that imply about less-informed stakeholders in the financial system?" he wondered. Lo suggested that the misguided narrative fit neatly into people's preconceived notions about the causes of the financial crisis and the need to apportion blame. "This example should serve as a cautionary tale for all of us," he wrote, "and underscores the critical need to collect, check, and accumulate data from which more accurate inferences can then be drawn." (Goldfield had alerted Lo to his cause; they were once classmates at the Bronx High School of Science.)

Blinder, for one, now admits he made a mistake. "The way I should have put it is that leverage is much too high," he told me in March. "Period." He said he would again urge TheTimes to correct the record. Susan Woodward also concedes the point that the 2004 rule change was not the problem. But, she told Reuters, "Everyone agrees that too much leverage was a key cause." Pickard, meanwhile, is sticking to his guns. He told me recently that he is still "100 percent behind what [he] wrote."

September 18, 2012

Scaling campaign contributors on a "liberal-conservative"

Stanford political scientist Adam Bonica has done terrific work mining public campaign donation records for insights into the behavior of campaign contributors. Using a scaling algorithm similar in flavor to those often applied to congressional roll call votes, he has mapped more than 50,000 candidates for federal and state offices and more than 11 million distinct campaign contributors on a "liberal-conservative" dimension.

September 17, 2012

Romney on fairness

I have a very different vision for America, and of our future. It is an America driven by freedom, where free people, pursuing happiness in their own unique ways, create free enterprises that employ more and more Americans. ...

This America is fundamentally fair. We will stop the unfairness of urban children being denied access to the good schools of their choice; we will stop the unfairness of politicians giving taxpayer money to their friends' businesses; we will stop the unfairness of requiring union workers to contribute to politicians not of their choosing; we will stop the unfairness of government workers getting better pay and benefits than the taxpayers they serve; and we will stop the unfairness of one generation passing larger and larger debts on to the next.

In the America I see, character and choices matter. And education, hard work, and living within our means are valued and rewarded. And poverty will be defeated, not with a government check, but with respect and achievement that is taught by parents, learned in school, and practiced in the workplace.

-- romneys-radical-theory-of-fairness.

Romney has to couch the implications of his argument carefully, but the underlying logic is perfectly clear. He believes that fairness is defined by market outcomes. If Romney earns a thousand times as much as a nurse in Topeka, it is solely because his character, education, or hard work entitle him to that. To the extent that unfairness exists, it is solely the doing of government: clean energy, laws permitting union dues, overpaid government employees, and so on. Aside from unfairness imposed by government, poverty is attributable to the bad choices or deficient character or upbringing of poor people.
Now I doubt that Romney actually believes the full implications of this, even though many Republicans certainly do. But it is striking that Romney's formulation makes no allowance for the role of government in alleviating unfairness created by the marketplace. To be sure, he is just making a campaign speech, but every speech by Obama invariably has passages lauding the marketplace and wealth. Here's Obama yesterday:
In America, we admire success. We aspire to it. I want everybody here to do great, be rich, go out and start a business. That's wonderful.
Now, campaign rhetoric is campaign rhetoric, but in this case it reflects an underlying reality. Obama wants the government to do a bit more to reduce inequality, but he is not proposing to change the United States' place as the most unequal advanced economy on Earth. His opponent has adopted the position that any interference with the natural level of inequality created by the market is illegitimate. He may not want to take that philosophy to its absolute limit, but he is running on a program that would go very far toward implementing it.
The desire by Democrats to center the campaign on this basic philosophical choice is not a distraction, nor is it an attack on wealth. It's an attempt to highlight what the election is actually about.

September 16, 2012

Clash of the fairness doctrines: Romney over Obama

Now it's clear that Mr. Romney is not about to cede fairness to his rival.

In a new argument that he first offered in a primary victory speech on Tuesday, Mr. Romney is laying claim to his own version of the fairness issue. He argues that the policies pursued by Mr. Obama and his Democratic allies are fundamentally unfair to Americans.

"I see an America with a growing middle class, with rising standards of living," he said, speaking in New Hampshire. "This America is fundamentally fair."

"And as I look around at the millions of Americans without work, the graduates who can't get a job, the soldiers who return home to an unemployment line, it breaks my heart," Mr. Romney added. "This does not have to be. It's the result of failed leadership and a faulty vision."

Call it the clash of the fairness doctrines.

September 14, 2012

Finish line equality: veil of opulence; Starting line equality: veil of ignorance

Nowadays, the veil of ignorance is challenged by a powerful but ancient contender: the veil of opulence. While no serious political philosopher actually defends such a device -- the term is my own -- the veil of opulence runs thick in our political discourse. Where the veil of ignorance offers a test for fairness from an impersonal, universal point of view -- "What system would I want if I had no idea who I was going to be, or what talents and resources I was going to have?" -- the veil of opulence offers a test for fairness from the first-person, partial point of view: "What system would I want if I were so-and-so?" These two doctrines of fairness -- the universal view and the first-person view -- are both compelling in their own way, but only one of them offers moral clarity impartial enough to guide our policy decisions.

Those who don the veil of opulence may imagine themselves to be fantastically wealthy movie stars or extremely successful business entrepreneurs. They vote and set policies according to this fantasy. "If I were such and such a wealthy person," they ask, "how would I feel about giving X percentage of my income, or Y real dollars per year, to pay for services that I will never see nor use?" We see this repeatedly in our tax policy discussions, and we have just seen the latest instance of it in the Tax Policy Center's comparison of President Obama's tax plan versus Mitt Romney's tax plan.

Benjamin Hale, assistant professor of philosophy and environmental studies at the University of Colorado, Boulder, and a co-editor of the journal Ethics, Policy & Environment

the veil of opulence is not limited to tax policy. Supreme Court Justices Samuel Alito and Antonin Scalia advanced related logic in their oral arguments on the Affordable Care Act in March. "[T]he mandate is forcing these [young] people," Justice Alito said, "to provide a huge subsidy to the insurance companies ... to subsidize services that will be received by somebody else." By suggesting in this way that the policy was unfair, Alito encouraged the court to assess the injustice themselves. "If you were healthy and young," Justice Alito implied, "why should you be made to bear the burden of the sick and old?"

The answer to these questions, when posed in this way, is clear. It seems unfair, unjust, to be forced to pay so much more than someone of lesser means. We should all be free to use our money and our resources however we see fit. And so, the opulence argument for fairness gets off the ground.

September 13, 2012

Debt stimulus and auto buyers

there are millions of gullible Americans who believe the storyline and are easily convinced that driving a $30,000 new car, financed over seven years, makes them a success. The decades of Bernaysian marketing propaganda has worked its magic on the government educated, math challenged citizenry.

There are only two things that matter to the non-thinking auto buyer (renter) - the monthly payment and what the next door neighbor and his coworkers will think. Buying a fuel efficient car they can afford, paying it off in three or four years, and driving it for ten years, while saving the monthly car payment, is what a practical, rational thinking person would do. The fact that only 20% of the 9.7 million vehicles sold this year have been small cars and the average sales price of new cars sold is now $31,000 proves Americans are still living in a delusional fantasyland of cheap gas and monthly payments for eternity.

The percentage of used car loans to prime borrowers is now at an all-time low, while the percentage of loans to subprime borrowers is near all-time highs reached just prior to the 2008 crash. When lenders cared about being paid back in the early 2000′s, they rarely made loans longer than five years. Today, more than 77% of all subprime used car loans are longer than five years and average FICO scores are now well below 600.

Ally Financial bets on risky subprime car loans

Ally Financial Inc, the United States' largest maker of car loans, hopes that people have forgotten the time when "subprime" became a synonym for "disaster."

Ally, once known as GMAC Financial Services, is getting ready to go public this year, and is making the case that subprime loans for used car buyers are not about to produce the same results that they did in the housing market a few years ago -- a near-collapse of the financial system.

David Henry
NEW YORK | Tue May 31, 2011 2:02pm EDT

September 12, 2012

Dan Ariely "The (Honest) Truth About Dishonesty."

One of the themes of Dan Ariely's new book "The (Honest) Truth About Dishonesty." Nearly everybody cheats, but usually only a little. Ariely and his colleagues gave thousands of people 20 number problems. When they tackled the problems and handed in the answer sheet, people got an average of four correct responses. When they tackled the problems, shredded their answers sheets and self-reported the scores, they told the researches they got six correct responses. They cheated a little, but not a lot.

That's because most of us think we are pretty wonderful. We can cheat a little and still keep that "good person" identity. Most people won't cheat so much that it makes it harder to feel good about themselves.

Ariely, who is one of the most creative social scientists on the planet, invented other tests to illustrate this phenomenon. He put cans of Coke and plates with dollar bills in the kitchens of college dorms. People walked away with the Cokes, but not the dollar bills, which would have felt more like stealing.

September 11, 2012

Amazon 2011

New features abound, of course, but they're the sort that university teachers and other white-collar workers know all too well: ways of doing more with less, by making workers (or customers) handle the routine chores that used to be done for them. Nowadays you can tag a given "product" for Amazon so that it knows what you think of a book; if you want, you can even study a tag cloud that lists and ranks the most popular customer tags, so that you'll do a better job of tagging for the company. You can enter a customer discussion or post a review.

And, of course, whenever you buy a book, you help Amazon not only gauge the book's popularity, but also identify the other books that you have bought as well. It's an efficient, thoroughly commercial counterpart to the old information system. The simple, elegant Web page that once showered discriminating customers with information now invites the consumer to provide information of every sort for Amazon to digest and profit from.

t's not a tragedy: these days, Google and other search engines do everything that Amazon used to, and more (it's probably no accident that Udi Manber currently works for Google). But it's a sad and revealing tale nonetheless. Back in the day, the World Wide Web was mostly open territory, and innovation focused on bringing more people into it and giving them more things to do once there. Now, the Web has been fenced, plowed and monetized. More information and more images can be found inside private silos--like the phone and iPad apps we all love--than in the virtual territory open to all. If Jeff Bezos has his way, not only the remaining superstores and independents but also the remaining publishers will disappear. We'll be disintermediated with a vengeance, as Amazon dominates our collective imagination. Once, Amazon opened worlds to us; now it just sells them.

September 10, 2012

the Atlantic: Special ed system favors the rich and Romney has a plan to fix it.

My family has lived this reality for many years. We have a severely autistic son who has attended private schools which offer intensive behavioral therapy ("Applied Behavior Analysis" or "ABA," which is the only therapeutic methodology for which much evidence of effectiveness exists) with a student-teacher ratio of 1:1, and has also been receiving extensive ABA and other related services after school. Those schools and related services have enabled our son to make what progress he has been able to achieve. They are also necessarily and extremely expensive.

But every single year, we have to "sue" NYC (technically it's not a lawsuit in a court but an impartial hearing as provided under IDEA, but it functions in very similar fashion) to cover the costs of such a school and services when they invariably recommend services far below what is necessary for our son to achieve any educational benefit. We have never lost one of our "suits" yet against NYC, but in the meantime we are required to front the cost of our son's school and services every year and seek eventual reimbursement from NYC. Very, very few families have the financial resources to do so. (And while we have enough resources to front the costs pending reimbursement, we are not nearly rich enough to bear the full costs of our son's school and services - those can exceed $170K per year.) Those that do not either have to move or make do with whatever the system offers, which is often far, far below what is necessary.

It should also be noted that the very malfunctions of large school systems such as NYC make it easier for families such as mine, who have enough resources to go through the battles every year, to obtain eventual public reimbursement for special education services. First, the IEP process described above presupposes intensive consideration of the student's individual educational needs. Large educational bureaucracies, such as NYC's, are not well equipped for that type of individual consideration. This leads to a tendency for the bureaucracies to offer services based on what's convenient and typical rather than what's appropriate for the student. Second, large school bureaucracies are not, to put it mildly, well renowned for their general administrative competence, and the IDEA imposes various elaborate procedural requirements on school districts that are regularly violated. A family can often demonstrate these two facts when necessary to enforce the IDEA against the school district, if they have the time and resources to spare.

The Atlantic our special ed system favors the rich and Romney has a plan to fix it.

Jasir interacted with the school's chief psychologist while Glasgow fantasized about the amenities: a video camera that wired to a central TiVo-like system, for ready replay to parents; a ceramics studio and music room; lights that don't buzz or flicker; two "sensory gyms" full of swings and ropes and trampolines.

After a few hours, Jasir was invited to join the school, with promises of eventually being mainstreamed out of special education altogether. The tuition would be $72,500 a year, but the Rebecca School's representatives insisted that that wouldn't be a problem for Glasgow, who fields customer complaints for the MTA.

An administrator from the school handed Glasgow a folder and pointed to a page inside. "If you want to come here," the rep said, "you ought to call one of these people on the list." It was HEADED REIMBURSEMENT FOR PLACEMENT MADE BY PARENTS IN A PRIVATE SCHOOL. Below was contact information for five lawyers and basic instructions on how to sue the city of New York.

New York City's open checkbook for autism is at the heart of the business plan for the Rebecca School, the latest in New York City's fastest-growing chain of for-profit educational institutions. When it's fully booked, perhaps two years from now, Rebecca will enroll 200 kids, making it the first megastore in a circuit of tiny boutique schools. The company launching it, Manhattan-based MetSchools, Inc., has spent $7 million to renovate 52,000 square feet of midtown office space (previously home to New York's biggest abortion clinic).

MetSchools CEO Michael Koffler, 50, is not an educator himself but a graduate of suny-Buffalo who majored in accounting and business administration. He has a Queens accent that twists its way around spools of special-education jargon, and a commonsense profit model: He finds niches where New York City's overstretched public and private systems have failed to tread. Like any business, it needs a revenue stream, and Koffler's comes from city and state government.

His entrepreneurial strategy is rooted in the national reforms sparked by a 1972 exposé of Staten Island's hellish Willowbrook State School, which shocked Congress into making sure disabled kids got a formal education. (At the time, nearly 2 million didn't.) The result was a new law entitling all children to a "free and appropriate public education"--or a city-funded private one.

New York is renowned as one of the only places in the country where parents who buy legal help can count on winning. Usually, lawyers never even have to prove the failings of the schools themselves, because the Board of Ed has missed some basic step, like putting together an education plan for the child (also required by law). Skyer ticks off a few other typical bureaucratic screwups: "They don't hold meetings, they lose files, they don't have mandated people at meetings, placements are not made in suitable groups." Usually the educators who attend the legal hearings have never met the children.

-- NY Mag

September 9, 2012

Uber #2

Taxi officials say that Uber's service may not be legal since city rules do not allow for prearranged rides in yellow taxis. They also forbid cabbies from using electronic devices while driving and prohibit any unjustified refusal of fares. (Under Uber's policy, once a driver accepts a ride through the app, no other passenger can be picked up.)

Cabbies using the Uber app receive a smartphone loaded with its technology, which tries to predict areas where rides are in high demand. The driver nearest to a requested pickup location receives a notification and is given 15 seconds to respond.

Travis Kalanick, Uber's chief executive, rejected criticisms that the service violated city rules against prearranged yellow-taxi rides. "Prearrangement means it's basically on behalf of a base," he said in an interview. "We're not working with a base."

David S. Yassky, the chairman of the commission, said only that the city had "led the country in terms of putting new technology to work for riders" and noted that the commission was currently requesting proposals for a smartphone-based payment system.

At the meeting, officials raised concerns about a regulatory issue that would prevent Uber from processing credit cards for taxi rides, according to Mr. Kalanick.

Mr. Kalanick said he had agreed to make the app's new services available for no charge for the next week, so that riders could "get a taste of the future," while the two sides try to resolve the regulatory concerns.

Uber is one of several start-ups, like Taxi Magic and GetTaxi, trying to profit by connecting drivers and passengers more efficiently. Another company, Hailo, said it had already registered 2,500 drivers to use a similar service that it planned to unveil in the coming weeks.

The influx of apps appears to have created a moment of unity among yellow-taxi, livery and black-car operators, all of whom have raised concerns about the apps' legality. Some industry officials said the commission was not acting forcefully enough; the result, said Avik Kabessa, the chief executive of Carmel Car and Limousine Service and a member of the board of the Livery Roundtable, a group representing livery drivers, is a New York City version of "the Wild West."

An analysis conducted by the Metropolitan Taxicab Board of Trade, which represents yellow-taxi operators, identified what it deemed to be 11 potential violations of taxi guidelines in Uber's model. These included charging a tip automatically, not allowing for cash payments and turning away passengers while being on duty.

Mr. Kalanick has said that Uber can operate while following all relevant rules -- noting, among other concerns, that drivers are instructed to use their phones to find passengers only while their cars are parked or legally standing.

Councilman James Vacca, the chairman of the City Council's transportation committee, said that the spread of taxi apps had the potential to create a "two-tiered taxi system" in the city: one for people "with fancy smartphones" who are asked to pay a premium, and one for everybody else.

"As a councilman from the Bronx," he said, "a disparity like that does concern me."

Arefin Rashid, the driver who arrived when Mr. Kalanick demonstrated the app on Tuesday, said the service would be especially welcome after a trip outside Manhattan.

"It's going to be a good thing to get fares more quickly," he said. "I don't have to worry about not having a next passenger."

September 8, 2012

Uber #1

The cab commission of the District of Columbia is less thrilled: it is in the midst of a legal tussle with Uber. Ron M. Linton, chairman of the commission, said Uber had begun operating in the city without its approval.

He said that under the commission's rules, there are limousines, which set a price with passengers in advance, and there are cabs, which have meters that charge by time or distance. He said Uber was breaking the rules by trying to be both. Uber calculates fares by time and distance, and then bills the customers' credit card.

The commission's inspectors have been citing Uber's car-service partners for infractions, Mr. Linton said. The commission is proposing to change the district's taxi laws to strengthen regulation of sedans like the ones that Uber's partners use. Mr. Linton said this would allow it to protect consumers from issues like extra fees that they don't understand.

"There's room for limos, for taxis and this new concept for sedans," he said. "We're trying to make it work for everybody, but we need cooperation. We can't deal with an organization that sticks its thumb up our nose."

Mr. Kalanick of Uber said its operations in Washington were completely legal, and that the commission was citing rules that don't exist. He said the commission wanted to regulate sedans more tightly so that it could control their fares, which would prevent Uber from eventually undercutting cabs.

"They want to keep our prices from going down, which is a very unusual price-fixing scheme," Mr. Kalanick said. "Essentially they're trying to protect taxis from competition, from having any viable alternative."

New York doesn't seem to have a problem with Uber. Allan Fromberg, a spokesman for the city's taxi and limousine commission, said that as long as services like Uber conformed to the city's rules, "we are highly supportive of ways to use technology to enhance service to the riding public."

September 6, 2012

Microsoft (1975 - 2000) $MSFT

The story of Microsoft's lost decade could serve as a business-school case study on the pitfalls of success. For what began as a lean competition machine led by young visionaries of unparalleled talent has mutated into something bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas that might threaten the established order of things.

"I was stunned when Bill announced that he was stepping aside to become 'chief software architect' in January 2000, with Steve Ballmer succeeding him as C.E.O.," recalled Paul Allen. "While Steve had long served as Bill's top lieutenant, you got the sense through the nineties that he wasn't necessarily being groomed for Microsoft's top spot. I'd say that Bill viewed him as a very smart executive with less affinity for technology than for the business side--that Steve just wasn't a 'product guy.' "

A businessman with a background in deal-making, finance, and product marketing had replaced a software-and-technological genius.

By the dawn of the millennium, the hallways at Microsoft were no longer home to barefoot programmers in Hawaiian shirts working through nights and weekends toward a common goal of excellence; instead, life behind the thick corporate walls had become staid and brutish. Fiefdoms had taken root, and a mastery of internal politics emerged as key to career success.

In those years Microsoft had stepped up its efforts to cripple competitors, but--because of a series of astonishingly foolish management decisions--the competitors being crippled were often co-workers at Microsoft, instead of other companies. Staffers were rewarded not just for doing well but for making sure that their colleagues failed. As a result, the company was consumed by an endless series of internal knife fights. Potential market-busting businesses--such as e-book and smartphone technology--were killed, derailed, or delayed amid bickering and power plays.

That is the portrait of Microsoft depicted in interviews with dozens of current and former executives, as well as in thousands of pages of internal documents and legal records.

"They used to point their finger at IBM and laugh," said Bill Hill, a former Microsoft manager. "Now they've become the thing they despised."

One Apple product, something that didn't exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion.

September 5, 2012

non-traded business development companies (BDCs): Good for the Broker, Bad for the Client

BDCs: Good for the Broker, Bad for the Client

In the wake of the implosion of many non-traded REITs, non-traded business development companies (BDCs) have emerged as a relatively new structure that is getting a lot of attention. But with high up-front fees and limited liquidity, some say they're not good for the client.

BDCs use a structure similar to non-traded REITs in that capital is raised in a continuous private offering, but BDCs are regulated under the 1940 Act that governs mutual funds. The big difference is that they're valued quarterly, while non-traded REITs are required to publish their valuations no later than 18 months after the conclusion of the offering.

September 4, 2012

Barton Biggs vs James K. Glassman and Kevin Hassett

Morgan Stanley deserves credit since it did not fire Barton Biggs, Byron Wien, or Stephen Roach during that period when most Wall Street firms replaced nourishment with treacle.

Two events come to mind.

In the summer of 1999, Barton Biggs debated James K. Glassman. This was the high summer - or, at least, the final summer - of the Internet bubble. It was obviously ridiculous but there was still time to get rich quick. To quote myself: "During the first four months of 1999, the average first-day percentage gains on IPOs were 271% (in January), 145% (February), 146% (March) and (119%) in April. More to the point is the lack of any operating record on the part of these enterprises. They were often no more than lavish compensation schemes for the promoters. Many of the companies had never earned a cent; quite often, they had never sold a thing; and not infrequently, they had neither a product to sell nor intended to develop a business.

"The book that captured the national idiom was Dow 36,000, by James K. Glassman and Kevin Hassett. They posted a preview on the editorial page of the Wall Street Journal on March 17, 1999: "Our calculations show that with earnings growing in the long-term at the same rate as the gross domestic product, and Treasury bonds below 6%, a perfectly reasonable level for the Dow would be 36,000 - tomorrow, not 10 or 20 years from now."

The debate between Biggs and Glassman is a classic example of people believing what they want to believe while ignoring the proverbial elephant in the room. Of course, in 2012, the obvious catastrophic consequences of central banking's destruction of the world's currencies as well as stock, bond, and commodities markets are not up for discussion.

-- Frederick Sheehan

The former Marine Corps infantry officer (Biggs, that is) was already a remnant. It was put to me: "1994 seems to me now the year when Wall Street broke from its moorings. Brokerage firms were losing their older 'customer's men.' The senior ranks on Wall Street had included a lot of Marine Corps and Naval officers from World War II and the Korean War. They kept it simple. They put their customers first. Those role models were leaving and there was a vacuum. It was every man for himself and if you didn't like it you either left or were forced to leave." This is not a phenomenon isolated on Wall Street. Self-control has disappeared en masse. (For more about that annus horribilis, see "Is it 1994 Again?" and "Sidelights to 1994."

In the April 11, 1994, issue of Barron's, Alan Abelson quoted from Barton Biggs' weekly letter to Morgan Stanley clients. Quoting Abelson (omitting ellipses): "In his latest epistle for Morgan Stanley, the incomparable Barton Biggs reflects on secular bear markets: "Secular Bear Markets Ain't No Fun." A secular bear market, in Barton's definition is a biggie - the major stock averages decline at least 40%. [Biggs counted seven secular bear markets in the twentieth century - FJS] He finds it 'unnerving' that all the secular bear markets came out of the clear-blue economic sky. In each and every case, he goes on, stocks were overvalued and greed was rampant.

"The one secular bear market of modern times came in 1973-1974. 'The Nifty-Fifty was decimated, with declines of 60% common and some wipeouts like Avon (135 to 18), Polaroid (70 to 6) and Corning Glass (61 to 13). The broadest measures of equities at the time - the Value Line Composite, which peaked in December 1968 - was down 75% six years later.'

"And then Barton remembers what that secular bear market was like. 'For me it was waking up every night in the spring of 1970 like clockwork at 3 a.m. in a cold sweat and agonizing the rest of the night over our portfolio. (I was a hedge fund manager then.) In the summer and fall of 1974 when the declines were endless day after day, you seriously wondered how you were going to support your family and where you could get a job outside of Wall Street. There were no answers. People you knew in the business - salesmen, money managers - just disappeared, and years later you heard they had moved to Indianapolis and were teaching seventh grade.'"

Glassman and Hassett thrive in an America without moorings. This illustrates a defining characteristic of our times. Dow 36,000 turned them into celebrities. It was published at the moment it would receive the greatest applause. The opportunists could not have been more wrong if they tried. The media noise for Dow 36,000 would turn them into greater celebrities.

September 3, 2012

b2b2c Zillow: how b2c becomes also b2b

Consumer Internet companies of the newer generation are doing even more. In many cases, the tools they are providing businesses resemble specialized versions of so-called customer relationship management services from companies like Salesforce.com, which help businesses increase sales and keep track of communications with clients.

By moving in this direction, consumer Internet companies hope to tap potentially rich new sources of revenue, which could make them more attractive to investors. A company that gets business clients to depend on a broad set of its services can make it tougher for competitors to swipe its customers.

"You can't just sell advertising without being exposed to someone else undercutting you on price," said Spencer Rascoff, chief executive of Zillow. "If you sell ads plus services, you're in a more defensible position."

Bill Gurley, a Zillow board member and venture capitalist, has seen enough hybrid Internet companies that serve both businesses and consumers that he coined a term to describe them: B2B2C. "We're moving from a day and age where you're just a Web site to one where we're automating the connections between businesses and consumers," he said.

Mr. Gurley's firm, Benchmark Capital, has invested in several other companies he puts in that camp, including Uber, which offers a mobile app that lets consumers hail a town car and gives drivers a "heat map" highlighting the areas where they are most likely to find customers.

GrubHub, another one of his investments, lets consumers order takeout and delivery food from more than 15,000 restaurants online and through mobile apps. In many cases, the service uses a clunky system in which customer orders are sent to restaurants by fax and confirmed by phone.

Recently, though, GrubHub introduced a product called OrderHub that could allow it to become more entwined in restaurants' operations. OrderHub is a tablet computer running Google's Android operating system that lets restaurants receive orders electronically, confirm them with a couple of taps and improve the accuracy of delivery time estimates.

Zillow's effort to court businesses seems to be going more smoothly. In an interview at the company's headquarters in a high-rise overlooking Elliott Bay in Seattle, Mr. Rascoff said Zillow had initially introduced a more straightforward plan to sell advertising to real estate agents, allowing them to buy "premier agent" advertising slots for specific ZIP codes so their names and contact information would appear when someone entered the address of a property on Zillow's Web site or mobile app. The advertising fees vary by area, but range from $200 to $300 a month on average.

Eventually, Mr. Rascoff realized that many agents wanted more than just advertising to help them convert home shoppers and sellers into commission-paying customers. In the last couple of years, Zillow has acquired three companies that provide tools aimed at real estate professionals, including a service for managing rental listings.

September 2, 2012

Investing in computer network security

Mr. Chandna of Greylock said the bulk of security start-ups that solicit his firm fall into one of four categories: mobile security, authentication, intrusion detection and "big data" security companies.

Several recently secured millions in financing. Lookout, a firm that blocks malware and spyware on consumers' mobile devices, raised $78 million from top-tier firms like Accel Partners and Andreessen Horowitz. A range of new start-ups market a similar service to businesses that now must deal with the headache of employees' bringing their iPhones and iPads to work and carting confidential intellectual property around with them.

Zenprise, a start-up that brings business-level security to consumer phones, recently raised $65 million. Appthority, a one-year-old start-up that tracks suspicious behavior by mobile apps, raised $6.5 million from Venrock, U.S. Venture Partners and others last May. Solera Networks, a security start-up that tracks intrusions in real time, has raised over $50 million from Intel Capital and others, and many say it is ripe for a nine-figure acquisition.

Yet here in Silicon Valley, with all the feverish talk of innovation and billion-dollar start-ups, few entrepreneurs and venture capitalists have been eager to take on the security juggernauts Symantec and McAfee -- and in many cases cybercriminals -- for a piece of that action.

That has started to change. In the last 12 months, the initial public offerings of once obscure security start-ups have outperformed offerings from household names like Facebook and Zynga. Imperva, a data security company that went public last year, finished 2011 among the year's top offerings. Its shares jumped nearly 30 percent on their first day of trading, and remain 37 percent above the offering price. Zynga's stock, by comparison, has plunged 73 percent since its offering last December.

Shares of Splunk, a data security company, jumped nearly 65 percent from its offering in April. It raised $331 million in a secondary offering. Most recently, shares of Palo Alto Networks, a security start-up, climbed 26 percent when they started trading in July.

The reason for the enthusiasm? "People are starting to realize that the billions of dollars that have been invested into traditional network security is not working for them anymore," said Ted Schlein, a partner at Kleiner Perkins Caufield & Byers, the venture capital firm.

Security start-ups have also become red-hot takeover targets. Apple, which has avoided big-ticket deals, agreed to acquire AuthenTec for $356 million last month in its second-largest acquisition to date. And last year, the EMC Corporation, which already owned RSA, acquired NetWitness. The price was never disclosed but people close to the acquisition talks say NetWitness sold for $400 million, more than 10 times its 12-month trailing revenue.

Venture capitalists have taken notice.

Last year, they collectively poured $935 million into tech security companies, nearly double the $498 million they invested during 2010, according to a MoneyTree report compiled by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters.

"We're seeing a flow of new entrepreneurs interested in the space," said Asheem Chandna, a venture capitalist at Greylock who invested in Imperva and Palo Alto Networks.

The rise of security start-ups is the product of a confluence of new technology, fear and people with a lot of money to invest. Major technological shifts, like the move to mobile devices and cloud storage, have redirected and increased the flow of information -- for both employees and hackers.

Hackers are becoming more sophisticated, too. Last year was the year of the "Advanced Persistent Threat," or A.P.T., a computer attack in which hackers spend time researching a target and its intellectual property, figuring out who has access to it, and deploying any means necessary to steal it.

September 1, 2012

Claudia Perlich, some machine modlelling links

Claudia Perlich mines and models data with machines:

"Leakage in Data Mining: Formulation, Detection, and Avoidance"
S. Kaufman, S. Rosset, C. Perlich, O. Stitelman. Forthcoming in Transactions on Knowledge Discovery from Data

"On Cross-Validation and Stacking: Building Seemingly Predictive Models on Random Data"
Claudia Perlich, Grzegorz Swirszcz. SIGKDD Explorations 12(2) (2010) 11-15

"Ranking-Based Evaluation of Regression Models"
Rosset, S., C. Perlich, and B. Zadrozny, Knowledge and Information Systems 12 (3) 2006 331-329

"Tree Induction vs. Logistic Regression: A Learning Curve Analysis"
Perlich, C., F. Provost, and J. Simonoff. Journal of Machine Learning Research 4 (2003) 211-255