The title of this NYT article got my attention: Italy Rejects S.&.P. Downgrade.

Why didn't the U.S. think of that?

Only Michael Arrington would propose something as absurd as a "wealth tax" and then use Donald Trump to demonstrate why it's not a crazy idea.

And only Michael Arrington would take Warren Buffet, one of our generation's most respected investors and philanthropists, to task for daring to ask the government to raise his taxes.

And only Michael Arrington could possibly claim that Buffett is hiding behind his fortune, ignoring (willfully or otherwise) that not only has Buffett already given it away, he has spearheaded a campaign to inspire many others to make similar pledges.

What insane faction keeps giving this man a soapbox?? Between Arrington and Trump, they've put more companies into bankruptcy in the last 5 years than Buffett has in 50. I'll take my economic advice from Mr. Buffett, thank you very much.

(Unless this insanity was all a ploy to identify the anti-intellectual crowd via the article's comments. In that case: well played, Arrington, well played.)

Old and busted: insightful tech journalism for a general audience

New hotness: attacking brand new (prototype!) technologies that you don't understand

Apple announced this afternoon that the App Store is coming to Macs - a brilliant move on their part. When the iPad was announced, I speculated that it would imitate the Dashboard of Mac OS. Instead, it pursued a "single serving app" model, with great success. So great, in fact, that now the tables have turned and Mac OS will adopt a healthy chunk of iOS's winning recipe.

Why is a Mac App Store a good idea? Can't we already install and run any application that a developer wants to build (and isn't it just as easy to build a Mac app as an iOS app)? Sure -- you just have to locate the application's website, download the appropriate version, mount the disk image, move the application to your Applications folder, eject the disk image, and run the application. In the future, you will have to launch, update, and quit the program as necessary.

With an App Store, running software becomes as easy as playing music.

In the App Store model, there's no hunting for an app's website or version - they are ordered by category, rating, downloads and price, and they are always up to date. Just hit "download" and you're ready to go - no mounting, placement, installation or ejecting required.  Start an app just like you'd start a song; stop it just the same. Don't worry about saving or quitting -- that's all handled for you. When you come back to the app, it'll be just as you left it, a la iOS multitasking/fast switching.

Let's take Angry Birds for example. I want to play it - so I click it in my App Store. A few seconds later, I launch the app and begin playing. A few hours later, I need a break, so I just stop. Maybe I switch to a different program. Maybe I walk away from the computer. It doesn't matter; I just stop. Whenever I want, I launch the app again and pick right up where I was. No quitting, saving or loading required.

Those hurdles may not sound like much, but they are extremely significant. The iOS platform has been a success due to its stripped-down simplicity, which belies an extremely sophisticated interior. Unsurprisingly, that's always been the Mac's claim to superiority as well. The new model will take it to another level.

I know there's a lot of users out there who will complain about the lack of file-structures, customization, interactivity, etc. etc. Those of you who feel that way can go right on using your Macs like you always have. The rest of us will get to enjoy one of iOS's best feature on our desktops.

Make no mistake, apps have entered the public perception - whether iOS, Facebook, Android, Amazon, Blackberry, etc. They have been successful because they distill the software acquisition process into its simplest, purest form -- and Apple is making an excellent move by bringing it to the desktop.

p.s. I've always held that the iPad was "more than just a big phone." Now we'll see it's just like a small computer. It's no coincidence that the new iLife '11 applications look just like iPad apps - they are iPad apps! That new "full screen mode" is just the precursor of their single-serving app implementations.

Benoit Mandelbrot had a greater academic impact on my life than perhaps any other person. I was deeply saddened to learn he had passed away.

The NYT has prepared an obituary.

Jon Stewart is insightful as always:

The Special Inspector General's report on TARP has been released from embargo. It concludes that TARP was unsuccessful, and even its (debatable) short-term corrections are overshadowed by the extent to which it has returned the economy to its previous bubble state -- "we are still driving on the same winding mountain road, but this time in a faster car."

From the executive summary:

The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial sys- tem and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

• To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the sub- stantial subsidies provided by TARP and other bailout programs.
• To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as neces- sary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
• To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
• To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Deep in southwestern Kansas, surrounded by miles and miles of absolutely nothing, is a giant stone-lined hole in the ground.

It's not just any old hole, though -- it's the largest hand-dug well in the world. And according to the WSJ, it's about to acquire a world-class museum:

The citizens of Greensburg are planning a $3 million Big Well museum and this month announced a contract with a high-profile design team, Ralph Appelbaum Associates Inc. of New York. The firm has designed exhibits at the American Museum of Natural History in New York, the U.S. Holocaust Memorial Museum in Washington, D.C., Bill Clinton's presidential library in Little Rock, Ark., and the Country Music Hall of Fame in Nashville.

Greensburg has been hit by hard times recently. A 2007 tornado devastated the city's downtown area and tourism has traditionally played a significant role in the local economy. Lately that support has been lacking:

In the 1970s and '80s, as many as 75,000 visitors a year would stop by Greensburg to peer into the murky water. They'd drop a coin (or, oddly, a shoe) for good luck, maybe even buy a $2 ticket and descend 105 steps to the claustrophobic depths.

In recent years, however, drivers whizzing past on Highway 400 have been less prone to pull over, despite a series of promotional billboards stretched out over 50 miles to build excitement.

It's easy to laugh at this seemingly ridiculous tourist attraction -- it's just a hole in the ground, after all. But I have to reserve judgement.

You see, I have been to the Big Well.

I've driven across Kansas. Twice. I've seen the billboards. And let me tell you, when you're faced with nothing but bland prairie for hours, those ads look amazing: "Stop and see the giant well! Have a cold drink! Forget that you're in Kansas, most boring state of all!" After all, your choices for stopping are the various McDonalds scattered along the highway median... or the GIANT WELL! And you probably stopped for a burger when you were only a third of the way across the state, which leaves only one option...

But here's the kicker. Greensburg isn't just the home of the world's deepest human-dug hole; it's also the home of the world's largest pallasite meteorite! (No longer - now it's just the world's second largest pallasite meteorite.) One town, TWO record-setting objects which conjure immense vertical images, from the heights of space to the depths of the Earth. Moreover, under one roof (at least, until the tornado came through). And I ask you: after trekking endlessly toward Kansas' uninterrupted horizon, how can you pass up this opportunity to transcend flatness?

For years, my brother and I have laughed privately at the odd-couple billboards we once saw (and obeyed): "See the world's largest hand dug well... and meteorite!" Maybe now we can share that amusement with other cross-country drivers.

Oh, and just in case you still harbor some concern that the Big Well (or Kansas more generally) can't compete in this plugged in, Disneyfied world, let them go:

In 2008, a popular vote online tabbed Greensburg's Big Well as one of the Eight Wonders of Kansas, on par with the Underground Salt Museum in Hutchinson (and a cut above the town of West Mineral's star attraction—"Big Brutus," an enormous electric coal shovel).

It was announced at the official opening of the tallest building in the world that it will no longer be called the Burj Dubai, but rather the Burj Khalifa, a nod to the President of Abu Dhabi, Sheik Khalifa.

One will of course recall that just a few weeks ago, Abu Dhabi rescued Dubai from the brink of bankruptcy in the form of a desperately needed $10B infusion. The name change is unquestionably a "thank you!" to the neighboring emirate. It might even represent collateral - if Dubai defaults again, hey, at least we got a landmark! Let's hope current bondholders don't have to find out.

Perhaps they could be consoled by knowing the money was put to good use in the most amazing fireworks show ever :

Click here to view the embedded video.

(The Burjwas last seen in TGR's most popular post to date)

From a WSJ opinion lamenting the state of Manhattan Chinese food (of all things):

Walk through New York's Chinatowns—there are two—and you'd think that the Chinese don't know about fine dining. Here it's all about shared tables at food stalls and loud, crowded dining halls that feel trapped in an era when Mao was still alive. Well, let me tell you: There are plenty of Chinese people with money, and they like to spend it on things besides U.S. Treasurys.

Is "Treasurys" an accepted spelling of "Treasuries"? I find the typo - if such it is - somewhat amusing, but I'm more than willing to confess my own ignorance if that's the case. A quick Google suggests that "ies" is the way to go, does anyone else have an opinion?

Update: an answer!

This article ran in the print version of the Wall Street Journal with the headline "Airbus Fixes Mandated." After reading it, I wondered "Airbus fixes mandated what?"

But I was wrong. I read "Fixes" as a verb and "Mandated" as an adjective. The headline writer had intended for "Fixes" to be a noun and "Mandated" to be a verb.

English is hard.

Senator Dodd's proposed financial reform bill is long on words (1136 pages, but there's an 11-page summary) and short on solutions. Institutions, posts and policies will be created; reports, hearings and testimonies will be given; escape plans, living wills and registrations will be submitted; and in the end very little will actually be done.

This is what I call a "watched pot" plan - it seems to operate on the principle that with enough people staring at the economy, it won't boil over. And we better hope not, because there's not much in this plan that tells the watchers what to do differently when it does.

So, let's meet our watchers:

First up, the Consumer Financial Protection Agency: a sort of FDA or CPSA for retail financial products. I have to wonder how exactly this is going to work; what will be the determination of a "fair" financial product? There won't be a smoking gun, like contaminated food or dangerous toys. But financial products are legal contracts, meaning the specification of every product is explicitly detailed in its prospectus. The prospectus goes far beyond the nutritional facts on the side of a box of cereal, specifying the product's details down to the manner in which the number of days between interest payments should be calculated. Since that document must be provided prior to a sale, there is little for the CFPA to do in the way of information transparency outside requiring warning labels that say, "Caution: do not apply for this mortgage if you are pregnant or nursing."

Instead, the CFPA will likely focus on the manner and clarity with which that information is presented. This will effectively result in banks outsourcing their marketing operations to the government. Now, it would be great for consumers to be better educated about financial products (indeed, the CFPA will embrace a new Office of Financial Literacy) but it's hard to imagine what sort of investigative abilities the CFPA will actually bring to bear. Would they be able to declare a recall of option ARM mortgages? I can't figure out how that would work. And would better knowledge of how an option ARM works really have prevented Americans from going after them like crazy? I am not convinced that the problem is that American's didn't know their rates would increase; I think a lot of it has to do with investors' myopic views and their simply not caring.

So: it's nice to have clarity in financial marketing, but this certainly won't be "A Watchdog with Real Teeth."

Next, the Agency for Financial Stability. This group will identify systemic risks and implement barriers to growth if a firm gets too big. It's a bit like a preemptive trust buster. It also relies on the ability to predict failure, something the government has been abjectly horrible at doing. This sounds a little like a rebranding of the Fed, except it will have no natural relationships with any the firms it is charged with regulating. Perhaps a better comparison is the Basel II accords, which were set up for exactly the same reason.

Finally, the Financial Institutions Regulatory Administration will combine existing financial regulators under one umbrella in the interest of efficiency. I am always a fan of efficiency.

Below that triad, the SEC will gain oversight of investment advisors with more than $100 million in assets, including hedge funds. One must wonder, given the teams of auditors that pour over these teams every year (with mixed results), how the SEC will possibly manage to pay attention to all the firms under its jurisdiction. A possible upside would be the implementation of standardized portfolio reporting systems - but I doubt it. The Madoff scandal shows that large firms can slip under the SEC's radar. Now small firms will have that opportunity as well. I'm kidding - fraud is, of course, an important area for government regulation. Let's be sure we're not creating a backstop for imprudent investors with one hand while the other one claims it's removing moral hazard in large institutions.

Moreover, the draft is quite clear in specifying that "investors in securities will be better protected by improving the competence of the SEC." It's actually quite a relief to see that admitted in writing, especially given that the agency is going to have even more firms under its jurisdiction. May I suggest improving the competence of investors as a secondary measure?

The Office of National Insurance is a new department at the Treasury tasked with overseeing - yup - insurance companies.

The new Office of Credit Rating Agencies at the SEC suffers the same problem as its parent - how can it possibly penetrate the depths of the firms it is charged with overseeing? Here's a paraphrasing of this office's abilities:

1. Require ratings organizations to disclose methodologies, use of third parties for due diligence, and ratings track record.
2. Require agencies to consider information from sources other than the organization being rated if they find it credible (huge "if" there!)
3. Compliance officers can not work on ratings, methodologies or sales
4. Investors can sue ratings agencies for knowingly providing flawed services
5. Require ratings analysts to pass qualifying exams and have continuing education.

On the one hand, none of this inspires any confidence in the rating agencies even after implementation. We already have their methodologies right here. On the other hand, it completely fails the "McDonald's all-white meat" test: if all of these would be new regulations, what were the rating agencies made of before??

Finally, the Municipal Securities Rulemaking Board is going to protect municipalities so that they aren't fleeced a la Jefferson County. It's unclear to me why that would be handled by a separate body than anything else - the interest rate products that were sold in Alabama weren't municipal; they were merely sold to a municipality. Misleading the client by any other name...

So, we've got all these people watching the system. The hope is obviously that they prevent anything bad from happening, and the major tool they have for ensuring that outcome is their ability to enhance financial transparency. While no one would deny that transparency can be helpful, is it really going to prevent a systemic failure? Hardly; but it might yield an early warning. ("Might" is a very strong word. How about "it might yield an early warning if the various regulators tune in to the right firm at the right time and accurately predict how future events will affect that firm's ability to do business as well as its relationships with other firms and their respective operative conditions.")

So what will our watchers do as the pot starts to bubble? Not much. Most of the options outlined in the draft would either have little impact or be impossible to carry out in practice.

One of the big bullet points is breaking up large companies. I don't see how this makes a dramatic difference - GM had to go into bankruptcy before it was broken up, and by then it was too late to stave off a failure (by definition). Breaking up a hurt company would be a gesture at best - imagine telling Citigroup today they had to split in two. For that matter, imagine telling them that in 2007, on the basis that "we think you're going to be dangerous in two years."

The regulators will have much more success with their second bullet: increasingly strict rules as financial firms grow larger. At least, they will have more success if progress is measured by "fewest number of large companies." There are not - and have not been - any monopolies in financial markets. Goldman Sachs has demonstrated that there is absolutely nothing universally systemic about this failure; they have succeeded despite the crash. So why are we afraid of large companies? Because of our fear that their failure could trigger Armageddon? Is there anyone who believes that if Lehman Brothers had not gone bankrupt, the economy would be healthy? Bank failure is a symptom of a dying economy, not a cause. There is no such thing as "too big to fail"; there is only "we're too scared to let you fail".

But don't worry - there won't be any government intervention. Companies will be required to provide their own capital injections by issuing hybrid securities. Will it work? Sure, as long as anyone's willing to provide them with capital. This worked extremely well for banks when the FDIC backed their debt. It didn't work so well without a guarantee.

And should the grim reaper come to take your firm to the giant trading floor in the sky, the company will have been required to provide a plan for its "rapid and orderly shutdown"  - a living will. The regulators will basically say, "Hey, Large Firm - we want to be able to close out your operations quickly and smoothly. Provide us a plan for doing so. Keep in mind that in such an event, you've likely lost most of your employees, have no excess cash or liquidity, and are inundated by screaming customers trying to extract what little value they can before you inevitably disappear. Don't forget that the market won't give you a good price on anything. Oh, and if you can provide a simple map of your subsidiaries, that would be great."

Meanwhile, derivatives will be traded on an exchange with a central clearinghouse. Nevermind that neither of those can provide any utility unless the derivative in question is widely adopted and traded. And banks that securitize products will be required to keep 10% of the credit risk. What does that mean? They must keep 10% of the exact product, by notional? Can they keep a different tranche, if the credit exposure is the same? What risk is it, exactly? None of these questions are answered, because they would require a definition of "risk".

So, we have a lot of new eyeballs on the scene and a few new ways to keep firms from getting big. I remain unconvinced that size is the qualifier here - firms don't have to be very big to do a lot of damage. Long Term Capital Management had fewer than $5 billion in assets when it required a government bailout. I don't really see how all of this will prevent another economic disaster. A lot of it is fine - the efficency, the education - but let's not delude ourselves into thinking everything is ok because we've designed a way out of the mess. Anyone who bought portfolio insurance in 1987 will agree.

Remember how a decade ago everyone was putting money into firms that produced nothing and had no assets, but sounded really good? More recently, banks started handing money to anyone who said they wanted to buy a house - just because they could. Now we have the government pursuing actions because they would have helped if they'd been in place before (according to the people implementing them). It looks like a regulation bubble from here, complete with shaky reasoning and all.

And the next time that the pot boils over, we'll be able to go back and see who wasn't watching whom the way they were supposed to. And maybe we'll assign someone to watch them in the future. Because the future, you see, always happens like the past.

In a cab last night, I heard a radio station broadcast a medly of "Barack Obama will be the next President of the United States" calls, followed by a heavily caffeinated announcing repeatedly that it has been one year since Obama was elected and soliciting comments from his audience.

Yesterday was November 3. Obama was elected on November 4.

I don't think that Election Day qualifies as a floating holiday in the same way that Thanksgiving or Columbus Day do. T-shirts from last year rarely displayed "Election Day 2008" - instead, they grounded their message with a real date: November 4, 2008. Somehow the claim that the election was "one year ago" doesn't sit right with me. I guess the real question is when do the Obamas toast the anniversary of their victory - did they do it last night or will they wait for tonight? I know it's the latter, but my radio station would obviously fall behind the rest with stale reports on things nobody cares about anymore because another media outlet had an excuse to broadcast it earlier.

As much as I agree with Maureen Dowd's latest opinion (shocking, yes), this drives me crazy:

If W. had gone to Dover in the middle of the night to salute the war dead, Limbaugh and Liz Cheney would have been gushing about his patriotism.

But since it’s Obama who at last showed up there to see the brutal cost of war, they simply have to dismiss the moving moment as a publicity stunt.

This sort of statement seems the lynchpin of modern political debate, and it's a travesty. It's a conditional conjecture disguised as fact, and highlighted by comparison to an opposite set of circumstances. Bush did not go to Dover, and even if he had we do not know what Limbaugh and Liz would have said. It is ludicrous to use this as evidence for an argument.

It would be different if Dowd compared Obama's Dover trip to an actual trip that Bush made under similar circumstances, and illustrated the difference in Limbaugh's response then and now; that would be a real comparison, and she does come closer to that ideal in a later paragraph. This excerpt, however, is purely speculative (or at least, unsupported in her opinion).

I hoped we were past the point where a colloquial call to induction like "you know if the situation were reversed he would have said so and so..." would not be considered appropriate evidence for a formal argument. (Even though I think she's right.)

It's an extraordinarily sad state of affairs when you can come to this country at the age of 12 as a refugee, train as a gifted runner in San Diego junior high and high schools, attend UCLA as an incredible four-time All-American award winner, become a naturalized US citizen as you graduate college, compete in the Olympics and win a silver medal for the United States and finally become the first American to win the NYC Marathon since 1982... and still have people insist you're not an American?!