February 28, 2007 4:54
Euromoney saves the global economy
Why did the market recover its bearings today? I'm thinking it's because so many traders were happily playing the Euromoney Champions League of Investment Banking 2007. When I got the e-mail from the London-based financial magazine this morning announcing the new game, I figured it was some sort of investment bank fantasy league, along the lines of the brilliant (if largely incomprehensible to those of us who aren't international relations scholars) Fantasy IR league that was launched in January.
That would have been way too much of a time investment, but it turned out just to be a funny little online soccer game. I chose to be ABN-Amro's Rijkman Groenink, partly because he was the default option and partly because I'm very pro-Dutch. (Rijkman means "rich man," by the way, which is surely the best name for a bank CEO ever.) Then Rijkman/I had ten chances to kick a moving soccer ball into the goal.
I didn't recognize the goalie, but the defenders included Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley. I scored one goal on a ricochet off Mack's face, and he was very rude to me after that. When I missed, he would say denigrating things like "Are you Commerz in disguise?" and "S*#t bank, no fees." Blankfein simply said "Donkey!" a couple times.
Anyway, I think I scored four goals. The game tabulated my score as 445, but I have no idea what that's supposed to mean.
February 28, 2007 11:45
Blogging about talking about blogging
I was on a panel Tuesday discussing "The Dos and Don'ts of Blogging" Tuesday at the Magazine Publishers of America's annual digital conference. Because I am the Blogspert.
Actually, no. It was because Lev Grossman was sick and I was his last-minute replacement. Business Week's Heather Green, who co-authors a blog about blogging (!), was the moderator. She had asked the readers of her blog for questions for the panel; my favorite was:
Just what do any of the folks taking part in this panel (or in the audience, for that matter) expect to learn or impart that hasn't already been beaten, stuffed and relegated to the attic?
Well, I don't think I imparted much. But here's what I learned:
1) TVGuide.com has gone totally blogwild, with 16 blogs by its editors and veritable oodles of reader-created blogs, the best of which are featured on its home page.
2) Wendy Perrin, the consumer news editor of Conde Nast Traveler and author of the blog The Perrin Post, works harder than I do. Yes, this work takes place aboard cruise ships and such. But I'm afraid of cruise ships.
3) When it comes to blogging, we magazine people feel like poor little upstart outsiders. Heather asked why no magazine blogs had cracked are in the Technorati Top 100 of the most linked-to blogs (actually, National Review Online's The Corner is No. 65, and I'd like to think our own Swampland will make it at some point). NYMag.com editorial director Ben Williams said it was because our blogs haven't been around nearly as the long as the "established blogs." The blogosphere arose in part as a rebellion against the establishment Mainstream Media. Now it is its own establishment. So we're the scrappy little guys (in our midtown Manhattan skyscrapers) taking on the Mainstream Blogosphere. Yeah, that's it! &$#@ the MSB!
Update: Here's another post on the subject. And yet another.
Update 2: The estimable Wendy Perrin weighs in (with thrilling photos!) here.
Update 3: A reader who loves Radar says in the comments that RadarOnline.com cracked the Technorati Top 100 not long ago, although it has since fallen back out. At the time, Radar did not exist as a paper magazine, so I'm not sure its blog would have rightly been counted as a magazine blog. That said, my wording above was unnecessarily sweeping (and, I think, misrepresented what Heather actually said), so I have changed it.
February 28, 2007 9:33
When the future changes, markets move
The sermon at my church Sunday was partly about real estate prices. (Is this a uniquely New York thing? Or do men and women of the cloth across the land regularly invoke the housing market?) The rector, a former lawyer who actually owned New York real estate back in the 1970s, said that back in those days nobody could imagine what subsequently happened--that apartments and houses selling then for tens of thousands of dollars would, three decades later, fetch millions.
And why should they have imagined it? Real estate prices in New York had been more or less stagnant since the 1929 crash. No one in his right mind could have been expected to envision the confluence of events--the rise of Wall Street to unprecedented economic prominence, the Reagan-era tax cuts, the fall in crime, the rise in the highest incomes, the desire of rich people from around the nation and world to live part-time in the city, the change in political climate that made new Robert-Moses-style building projects impossible--that led to Manhattan's (and Brooklyn's) real estate boom.
I bring this up not to make a prediction about housing prices (although I find it extremely hard to believe that the next 30 years will look like the last 30), but to put in context the current wobblings of global financial markets. Investors generally work on the assumption that the future will look an awful lot like the recent past. That's because the world is way too complex for anyone to reliably predict its future course by any other means. But every once in a while it becomes evident that the future isn't going to be like the recent past. That's when markets go nuts.
I'm not sure we're there yet this week. But it has to happen sometime, because the future isn't always like the past.
February 27, 2007 6:10
416 points ain't what it used to be, but still ...
So the Dow Jones Industrials fell 416 points today, which sounds like an awful lot, but really isn't anymore. On Black Monday in 1987, a 508 point drop amounted to 23% of the Dow's value. Today's drop was just over 3%.
Still, there's reason for there to be worry in the air. None other than Alan Greenspan has been warning for a few years now that the Federal Reserve's success in staving off financial crises and economic meltdowns over the past couple of decades "may have encouraged investors to accept increasingly lower levels of compensation for risk." What that means, he explained in a speech in August 2005, is that we've all become willing to pay more for real estate, stock, bonds, and other investments than we probably should.
Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.
Lately others have been picking up on this theme. Just yesterday, Morgan Stanley chief economist Stephen Roach warned (sorry, there's no link that I can find) that:
After four fat years, convictions are deep that nothing can derail a Teflon-like economy. Investors, policymakers, and politicians have no succumbed to a dangerous complacency. That's the time to worry most.
The thing is, Roach, although he's been reasonably bullish for the past year, is a born worrywart. Greenspan, as noted, has been talking about the risks of too little concern for risk for several years now. And markets have been ignoring them.
But sometimes a chain of relatively minor--and, by themselves, unsurprising--events can shake investors out of their complacency. Last week, the subprime mortgage lending industry began to show signs of imploding. Then, on Monday, Greenspan repeated his warnings about risk and said that a recession late this year was "possible." Then Roach had his say. Then, today, the Shanghai stock market--which everybody knew was due for a downward correction--fell 8.8%. The Taliban tried to blow up Dick Cheney. And the January durable goods number came in below expectations.
Back in early January, Merrill Lynch chief investment strategist Richard Bernstein had this to say (can't find a link) about how the market's risk-ignoring days would end:
We view financial risk much like popcorn popping in a microwave. Until the first kernel pops, one tends to believe that nothing is happening. The initial pop seems like a random event until a second occurs. A third. A fourth. Then the popping goes wild.
Can you hear the popping yet?
February 27, 2007 10:22
The economic justification for the Iraq war
A reader in Oshkosh, Wisconsin, sent me a letter (on paper! with a written in pen!) in response to my column a few weeks back about northern Virginia's astounding, taxpayer-funded prosperity ("The Federal Job Machine"). Apparently Oshkosh Truck Corp., maker of "the world's toughest specialty trucks and truck bodies," is doing famously these days, thanks to big orders from the U.S. military. According to a recent article in the Milwaukee Journal Sentinel, the company expects to hire several hundred people in the coming months:
"If you know any welders, send them our way," Robert Bohn, Oshkosh Truck Corp. chairman, president and chief executive officer said at the company's annual shareholders meeting in Appleton.
Sadly, I don't know any welders. Or at least I don't know that I know any. I do know some unemployed journalists, for whatever that's worth. Maybe they could learn welding.
Anyway, my Wisconsin reader cites the boom at Oshkosh Truck and concludes:
When the government stops spending and running huge deficits the system will collapse. Guys around here want the Iraq war to go on for a few more years.
I don't know that I agree with that "the system will collapse" prediction: Current deficits are not, by historical standards, all that huge. But still, it's an interesting thought, no?
February 27, 2007 8:01
Greenspan speaks, doesn't say much, markets move
We're more than five years into the current economic expansion, which means it's entirely natural that we ought to be worrying about when it might end. This expansion has already lasted longer than most of its post-World War II counterparts, after all. Last year a few economists predicted that falling housing prices might send us into recession soon. That hasn't happened yet, but again, any investor with half a lick a of sense knows that a recession is a possibility.
So why was it news yesterday when former Fed chairman Alan Greenspan said that it's "possible" the economy will fall into recession toward the end of this year? And why did bond prices rise (and interest rates fall) in response?
Greenspan made pretty clear in his speech that by "possible" he really just meant possible, and wasn't predicting anything. So here are my four explanations.
1) We're all so used to hanging on to Greenspan's every word that, even though he no longer controls U.S. monetary policy, we still act as if he does.
2) Bond investors are dense, had forgotten that recession was a possibility, and were shocked when Greenspan pointed out that it was.
3) Initial reports and trading-floor rumors made it sound as if Greenspan were actually predicting a recession.
4) Bond markets moved for some other reason, and the whole Greenspan-speech thing was a media phantasm.
February 26, 2007 12:36
So why exactly does Mel Karmazin get to be the CEO?
Something's been bothering me about the XM-Sirius merger. Everything I've read seems to point to XM being the better-run of the two satellite radio rivals. Hugh Panero, the CEO since 1998, got his company's radios to market first, signed better distribution deals than Sirius did, and has been running a significantly tighter ship. This morning, XM reported that its losses dropped dramatically in the fourth quarter, and that its cash flow from operations had actually swung into positive territory for the first time.
Meanwhile, over at Sirius, Mel Karmazin showed up in 2004 and has been spending money like crazy ever since in an effort to catch up.
So who gets to be CEO of the combined company? Karmazin. And who has to find a new job? Panero.
There is a certain twisted stock market logic to this. Karmazin's reputation as a media empire-builder and his bold (if expensive) moves to lure the likes of Howard Stern (the centerpiece of Karmazin's previous media empire at Infinity/CBS/Viacom) to Sirius have boosted the company to a higher market value than its bigger rival.
But as Andrew Ross Sorkin pointed out in yesterday's Times, the deal is structured as if XM and Sirius were worth the same amount. Karmazin justified this to Sorkin as a sacrifice he had to make to get the deal done. It might also be that the dealmakers know something that Wall Street, blinded by Karmazin's star power, seems unable to recognize--that XM might be the better company. Yet it is XM's CEO who is headed for the exits. Weird, eh?
February 26, 2007 11:03
David Beckham's incredible shrinking paycheck
At first the word was he was going to make a quarter of a billion dollars over five years. Then Grant Wahl reported in January that David Beckham's L.A. Galaxy pay will be more like $50 million over five years. Now the AP tells us his base salary is actually $5.5 million a year.
At this rate, we should expect to learn soon that Becks is actually paying Phil Anschutz for the privilege of getting to live in Southern California and jump start his wife's movie career while staying in shape. Actually, no: The main reason for the discrepancy in reported paychecks is that Beckham is getting paid, Hollywood-style, as a percentage of ticket and merchandise sales. But I don't know that letting the ever-less-impressive details of the contract trickle out like this is such a smart idea for Major League Soccer. At first the league looked ridiculously profligate. Now it's starting to look cheap.
Update: For those too lazy to read the comments, an astute reader in Philadelphia had this to say:
I don't know why MLS put out the first figure (perhaps as a sop to Becks' agent), but I know why they've put out the second, lower one. As they've seen their attempts to sign other international stars fail left and right, they saw the need to reset expectations of those players who saw the crazy huge numbers and wanted the same.
February 25, 2007 10:39
Liveblogging the Oscars
There's no way I can keep up with or be one one-millionth as intelligent and informed as Corliss and Poniewozik, but I feel the call to say something about the Oscars.
So here it is: I'm pretty sure it's BLAN-chut, not blan-SHETT. Back me up on this, Cate.
February 23, 2007 2:03
The crucial difference between hedge funds and tech companies
A little while back, in the august pages of Foreign Affairs, Washington Post columnist Sebastian Mallaby offered a rousing defense of hedge funds. It began:
Imagine two successful companies. Both are staffed by very smart people; both are innovative; both have an impact far beyond their industry, improving the productivity of the capitalist system as a whole. But the first, based near San Francisco, is the subject of adoring newspaper profiles, whereas the second, based in the New York area, is usually vilified.
Actually, you do not have to imagine any of this, because it describes a double standard that already exists. The first company in the story is a technology firm; the second is a hedge fund. As any newspaper reader knows, technology firms are the leading edge of the U.S. knowledge economy; they made possible the productivity revolution of the past decade. But the same could just as well be said of hedge funds, which allocate the world's capital to the companies, industries, and countries that can use it most productively.
It's a clever comparison. But for some reason I just can't entirely buy it. Maybe it's the result of hanging out too much with Jack Bogle, whose long career in the mutual fund industry left him convinced that the vast majority of money managers are parasites who add no value whatsoever. Maybe it's the upshot of having spent a few years researching a book (no, it's not out yet) about the frequent failures of financial markets to rationally allocate capital. Maybe it's that I harbor deep resentment about the way hedge fund managers and other Wall Streeters have so driven up the price of Manhattan real estate that I can't afford any but the teeniest slice of it. Maybe it's that I harbor even deeper resentment against Wall Street because my great grandfather lost the family fortune in the Panic of 1893 (at least, that's the legend).
Whatever. All I know is, while I'm not opposed to these hedge fund things, I don't entirely trust them. So when the President's Working Group on Financial Markets--a Gang o' Regulators initially created in the aftermath of the 1987 crash--releases a set of "principles and guidelines" arguing that the current non-regulation of hedge funds is working really well, as it did yesterday, I get suspicious.
It's not that I can point to any particular guideline as being wrong. And I really do like the Working Group's habit of referring to hedge funds as "private pools of capital," because it would be so great if everybody started calling hedge fund managers "private pool managers," or maybe just "pool men."
But I get the heebie jeebies when I read a line like: "market discipline by creditors, counterparties, and investors is the most effective mechanism for limiting systemic risk from private pools of capital." Market discipline is swell and all, but the whole reason we have banking regulators and a Federal Reserve system is because market discipline can't always be relied upon to keep financial markets from going bonkers. I think that's because it's possible to make money for years by underestimating the riskiness of a particular lending or investing strategy. The crows come home to roost eventually, but the person who made the fateful decisions and cashed the big bonus checks every year might have moved to Gstaad by then.
That's one of the things that makes hedge fund managers different from tech entrepreneurs. Sure, there were some dot-com types who took advantage of the stock market insanity of the late 1990s to get rich without delivering anything of value. But in general, tech guys have to deliver a product that people want and need in order to profit. Hedge fund managers, on the other hand, can get rich merely by taking risks that their customers (and often the hedgies themselves) don't fully understand.
Now, expecting government regulators to understand those risks is a pretty tall order. But at least they have different motivations and time horizons than the money managers, investors, and lenders. The closest thing to a regulator of the hedge fund business is the president of Federal Reserve Bank of New York, a job currently held by the boyish Tim Geithner (all media references to Geithner are required by law to mention his youthful appearance). Lately, Geithner has been pushing New York's big banks and brokerage firms to more closely examine their exposure to their hedge fund customers, particularly in the burgeoning and opaque market for credit derivatives, and has even been talking to the press about it.
Maybe Geithner's informal nudging is all we need. I certainly don't have any better ideas, given as how I'm not entirely clear on what a credit derivative is. All I know is that there are some perfectly good reasons why we journalists are more likely to write adoring profiles of tech entrepreneurs than of pool men, and that those reasons have implications that regulators can't afford to ignore.
Update: An inordinately well-informed reader tells me that if I'd gotten to page 146 of Growing With America: The Fox Family of Philadelphia, I would know that my great-grandfather lost his fortune not in the Crash of 1893 but in the early 1900s. "I think he got in over his head with some unscrupulous businessmen and got his ears trimmed back," this reader writes. Okay, so that wasn't Wall Street's fault.
February 23, 2007 9:56
This week's Time
Due to a combination of being sick most of last week and supposedly being busy with an important "project," I don't have a column in this week's Time. I did have a last-minute opportunity to write something about the XM-Sirius merger, but decided I didn't have much of anything more to say than what I posted here on Tuesday. So it was interesting to pick up this morning's Times and see the column I would have written (warning: it's behind the TimesSelect wall), were I as wise and knowledgeable as Floyd Norris.
Anyway, I've discovered that I hate having the magazine come out without my column in it, so this won't happen often if I can help it. I guess if I'm desperate I could just call Floyd and ask him for ideas.
There are of course lots of other excellent reasons to rush out to your local newsstand and buy a copy of the new Time, among them an article about nonprofit juggernaut Jane Leu, who happens to be an old friend of mine, and Bobby Ghosh's great cover story about the Sunni-Shi'ite divide.
The intrepid Ghosh's story is something of a journalistic landmark, in that it appears to mark the full conversion of his byline from "Aparisim Ghosh" to "Bobby Ghosh." A couple of weeks ago he took the interim step of changing it to "Aparisim 'Bobby' Ghosh," and now the transition is complete. ("Bobby" is what everybody here called him all along.)
February 23, 2007 9:44
The gift economy implications of Bill Clinton's belated payday
When I saw the front page of today's Washington Post, with its big story on Bill Clinton's speaking-fee riches, it made me think of a sneaking suspicion I harbored while writing my working-for-free column last week.
The Post article says Clinton has gotten almost $40 million in speaking fees over the last six years:
His paid speeches included $150,000 appearances before landlord groups, biotechnology firms and food distributors, as well as speeches in England, Ireland, New Zealand and Australia that together netted him more than $1.6 million. On one particularly good day in Canada, Clinton made $475,000 for two speeches, more than double his annual salary as president.
So here's my suspicion: That a significant percentage of people who work for free, plus a lot of those who accept lower salaries to work in government jobs, are doing so in hopes that they can clean up on the speaking circuit someday. It's just a matter of foregoing income now in hopes of creating a "brand" that generates income later.
Even now, according the Post article, Clinton doesn't get paid for 80% of the speeches he makes. It's just that crucial 20%--plus a couple of big book deals--that has moved the Clintons from perpetual scrabbling to real wealth. We can't all become profitable brands, of course, but even the faint hope of becoming one someday is a pretty powerful economic motivator.
February 21, 2007 12:57
Reading the Times for the (JetBlue and Chodorow) ads
There are those who say the New York Times' website has gotten so good you don't need to read the newspaper anymore. But Website-only readers are missing two of the most interesting things in today's paper: The full-page ads taken out by formerly beloved airline JetBlue and crotchety restaurateur Jeffrey Chodorow.
The JetBlue ad, an extended letter of apology that I have not been able to find on the company's Website (although you can watch CEO David Neeleman apologize here), is a model of frank corporate communications in the face of embarrassment. "We let you down," the airline tells its customers after a week of canceling flights and stranding passengers, and the message is that they won't let it happen again.
And here's the thing: I believe them. Maybe I shouldn't, but I have no hesitation about flying JetBlue in the future. If I had actually spent the weekend at JFK, the epicenter of the JetBlue mess, I might feel different. But I didn't, and I'm willing to take all those abject apologies and promises of betterment at face value. So here's my guess about how the mess will affect JetBlue's business: Some significant percentage of the people whose lives were messed up by the airline over the past week will never fly it again. The impact on the rest of the customer base will be minimal.
Then there's Mr. Chodorow, who took out a full page in the Dining In/Dining Out section to vent his frustration with the negative review of his new restaurant, Kobe Club, that was published in the paper a few weeks back. (There's a link to a pdf of the ad at the end of this blog post.)
It used to be said (by Bill Clinton, among others) that one should never pick a fight with people who buy ink by the barrel. That's no longer really true--Chodorow and anybody else with a computer and an Internet connection can now get barrels of pixels virtually for free. So Chodorow is starting a blog in which he will, among other things, critique the work of Times restaurant reviewer Frank Bruni and New York magazine's Adam Platt, who also didn't like Kobe Club.
So far, so good--in fact, I have already bookmarked the chod-o-blog. But I won't be reading it for good information about New York restaurants. I'll be reading it because Chodorow is so willfully, entertainingly obtuse. He has taken control of the message, as PR people advise their clients to do, but his message makes him look far worse than any restaurant critic could.
Here, for example, are his problems with Bruni's review:
1) Some other critics liked the restaurant, and it's drawing big crowds. Okay, great, so why are you complaining?
2) The review "was as much or more about me than it was the restaurant." Actually, only about 10% of Bruni's 1,125-word review was about Chodorow. Which seems pretty reasonable, given that Chodorow is a famed restaurateur most widely known for having played the heavy in the 2003-2004 reality-TV show The Restaurant. And now every future review of a Chodorow restaurant will probably also have to make mention of his crazy blog, too.
3) Bruni's background is in political reporting, not restaurants.
It is this last one that really gets me, mainly because Chodorow appears to be entirely unaware of why the Times has, twice in a row, picked people without a professional food background to be its lead restaurant critic. The reason is that anybody who has been writing about or working in New York restaurants for years is way too compromised to meet the standards the Times expects of a restaurant critic. Veteran Times food writer Amanda Hesser caught all sorts of flack for her friendships with chefs when she filled as critic for a while in 2004. Food writing is by its nature an incestuous, favor-filled business; critics shouldn't be playing that game.
So the Times can either bring in a foodie from out of town, as it did when it hired Ruth Reichl from the Los Angeles Times in 1993, or assign the job to somebody who comes to the topic fresh. My personal opinion is that Bruni predecessor William Grimes was an inspired critic, while Bruni's reviews are pretty dull. I don't eat out at fancy restaurants enough to judge whether their reviews were right. But I'm certainly not going to put any stock in Chodorow's reviews of the reviews--although I will of course read them for laughs.
Update: Mimi Sheraton, who knows of what she speaks, has her say on the food fight here.
February 20, 2007 2:20
The 'stop us before we spend again' merger
I can't really tell you whether the proposed Sirius-XM satellite radio merger will be good for consumers or investors. I do know who it's got to be bad for: the talent. Nobody else will be getting deals like the five-year, $500 million contract Howard Stern landed with Sirius in 2005, that's for sure.
This I learned from listening to today's conference call with Mel Karmazin of Sirius and Gary Parsons of XM. Neither man talked about the big paychecks the King of All Media (funny how nobody calls him that anymore) has been getting or the huge sums XM is forking over to broadcast Major League Baseball games and Sirius the NFL and NASCAR. But they both made clear that the whole idea of the merger is to make the two companies stop hemorrhaging money.
Doing away with XM's and Sirius's duplicate sets of satellites will be a big cash-saver at some point down the road, but XM's Parsons said that will be more than a decade from now. Karmazin, meanwhile, boasted that the merger will bring "synergies on every line item of the income statement." Then he reeled off a few biggies: catering! security! legal! Yeah, that'll add up to, uh, several hundred thousand dollars right there.
Which leaves the money that the two companies have been lavishing on programming, especially since Karmazin arrived at second-place Sirius in 2004 and began shoveling billions of dollars out the door in an effort to catch up with XM. Amid the bidding wars since then, the companies have lost a combined $4.2 billion (with Sirius accounting for $2.4 billion of that), and the red ink was showing no real sign of abating.
Call it the "stop us before we spend again" merger. There are regulatory and antitrust hurdles in the way, of course, but Karmazin and Parsons wouldn't have gotten this far if their soundings in Washington hadn't told them they had a good chance of succeeding. "Consumers today have a significantly broader range of audio entertainment options from which to choose than was the case when our businesses were conceived over 10 years ago," is what Karmazin said on the conference call, rehearsing a phrase he will surely have cause to repeat ad nauseum in visits with regulators and legislators over the coming months.
He's right about that, of course. In a world of Internet radio and iPods and cell phones that play music, saying that the combined company (they haven't picked out a name yet) would have a satellite radio monopoly is sort of like saying that PepsiCo has a monopoly on Cool Ranch Doritos. One could even argue that combining the two networks will increase consumer choice, because now you'll be able to get both baseball and football on the same subscription.
Still, don't you feel bad for all those DJs and talk show hosts and sports leagues who will no longer be able negotiate extra sweet deals by pitting XM and Sirius against each other? Oh, you don't? Never mind.
February 16, 2007 4:54
Free labor, Peter Kropotkin, and Yochai Benkler
My latest Time column is now online (and on actual paper in the issue dated Feb. 26, with the little fetuses on the cover). It begins:
It might seem very odd to look to a long-dead Russian anarchist for business advice. But Peter Kropotkin's big idea--that there are important human motivations beyond what he called "reckless individualism"--is very relevant these days. That's because one of the most interesting questions in business has become how much work people will do for free. Read more.
The column revolves mostly around the work of Yale Law School's Yochai Benkler, a modern-day, more-or-less capitalist Kropotkin. As always, I plan to blog more on the subject in the coming days. But a couple of links and remarks are in order now.
The discussion between Benkler and Nicholas Carr that led to the world-famous Carr-Benkler wager was conducted in the comments section of Carr's blog following this post. Carr's blog, which he calls "Rough Type" but everybody else seems to refer to as "Nick Carr's blog," is really good, by the way. As can be expected of a man who made his name in 2003 with Harvard Business Review essay titled "IT Doesn't Matter" (IT being information technology), he's skeptical of pretty much everything, especially the transformative effects of technology. Not that there's a problem with that.
Also, I'm now about halfway through Peter Kropotkin's Memoirs of a Revolutionist, and can highly recommend it. He wrote the memoirs in English, for the Atlantic Monthly, and they're an amazing (and very entertaining) glimpse into a lost world. Kropotkin was a child of the fading Moscow aristocracy, he lucked into a spot in the prestigious Corps of Pages in St. Petersburg--spending a year as Tsar Alexander II's page de chambre--then volunteered for service in the wilds of Siberia. At some point after that he became a notorious anarchist, but I haven't gotten that far yet.
Finally, here's what it says at the bottom of my new column: "To read Justin Fox's daily take on business, go to time-blog.com/curious_capitalist." I started this blog last year as a way to write a little more frequently than Fortune's publication schedule allowed--that is, once a week or so--while giving readers an opportunity to shoot down my especially half-baked ideas. Now I'm supposed to be doing it daily? See, this is that free labor stuff I'm talking about.
February 15, 2007 11:58
Building the first draft of Mumbai in northern Virginia
A reader (and old friend) comments on my hopeful post about the northern Virginia boom region that is Fairfax County:
I don't really buy the assessment that Fairfax is another Paris in the making. I actually think there is something fundamentally different about the way sprawl works today and about the way places like Fairfax have developed (beginning in an essentially parasitic manner as commuter hubs for an older, core city) from the way places like London or Paris developed. Now I haven't read Edge Cities. I'll have to check it out. But I would offer a more cautionary analogy here to those who think runaway growth is a good thing: perhaps Fairfax is actually the next Mumbai or Sao Paolo or Lagos. These are great cities--but they are in many ways sprawling, unmanaged and unmanageable cities with huge environmental problems. Or maybe Fairfax will become the next Las Vegas--a totally artificial and sprawling place, completely out of touch with the natural environment into which its been planted. I think there is something so artificial and hermetic about places like Tysons that kind of give me the creeps.
And I don't think guys like Til Hazel should be considered such great heroes and praised for their 19th Century attitudes. After all, we are still trying to repair much of the world for the damage wrought by those 19th Century ideas about progress.
I also think Fairfax is a bit unique in that the core city--DC--probably won't ever become so hollowed out as to disappear. (The Congress, the White House and the Pentagon aren't going to pick up and move any time soon.) But that's not what's happening in other areas experiencing a high level of suburban sprawl--in particular in those old Rust Belt cities like Detroit, Buffalo, Pittsburgh and my hometown, Cleveland. Here the boom in the suburbs and the exurbs has come at the expense of the core, which is really dying. I think it's sort of happening in Seattle too where the Redmond and some of the other suburbs are now operating very indepedently of the downtown.
Update: Here's the LA Times article on Orange County residential skyscrapers mentioned in the comments.
February 14, 2007 5:18
Steve Schwarzman: Bad party, good buyout
What are we to make of buyout king Steve Schwarzman's insanely over-the-top 60th birthday party at the Park Avenue Armory in New York last night?
First, it just sounded really unpleasant. Five hundred mostly fair-weather friends (nobody has 500 real friends, and the Schwarzman guest list seemed to lean heavily toward the fake and the famous; or at least, that's who got mentioned in the papers) standing around in fancy clothes in an armory listening to Rod Stewart. Not. Fun.
Second, it's really tempting to declare after the party and the almost-record-setting $39 billion buyout last week of property giant Equity Office by Schwarzman's Blackstone Group that Schwarzman is headed for a fall. Private equity in general is headed for some sort of a downturn soon; these things go in cycles and this up cycle has gone on just about long enough. Firms will go under, investors will lose money.
But I don't think Blackstone is going to be one of the casualties. Schwarzman is too smart for that. Consider this Bloomberg story about Schwarzman lieutenant Jon Gray:
Fear is driving Gray, the 37-year-old co-head of Blackstone's real estate team. Gray is so scared his deal will meet a fate similar to Kravis's RJR Nabisco deal, which saw its profits eroded by debt costs, that he found a buyer for eight of Equity Office's Manhattan skyscrapers before Blackstone even owned them. Now he's scrambling to sell buildings in cities with the highest rents and lowest vacancy rates--even properties Blackstone would rather have kept.
Somehow, I think everything's going to turn out okay for these guys.
February 13, 2007 7:06
Meanwhile, in suburban Maryland ...
A loyal reader in McLean sent me a link to this article by Alec MacGillis in last Thursday's Washington Post. It begins:
To hear some activists and local officials in Virginia tell it, the key to slowing rampant growth is to follow the lead of many Maryland counties: Ban development where roads and schools are crowded.
But here is what that method has accomplished in Anne Arundel County: More than one-third of its school districts are closed to new subdivisions, even in areas intended to absorb construction under the state's much-touted "slow-growth" laws. As a result, development is being pushed to more rural parts of the state less suited to handle it.
It's enough to make northern Virginia's Til Hazel, who spent decades thwarting the slow-growth types in his neighborhood, look like some kind of environmental hero.
February 13, 2007 5:22
Building the first draft of Paris in northern Virginia
My conversation with Til Hazel took place, appropriately enough, in the parking lot of a brand new shopping center just off Highway 7 (the Harry Byrd Highway) in Loudoun County. I was there working on my column in this week's Time about the staggering mass prosperity of Loudoun and neighboring Fairfax County, and while the column ended up focusing on the proximate source of that prosperity--your taxes--I was also very interested in just how the region had developed.
That's partly because Mrs. Curious Capitalist is from the Fairfax County boomtown of Reston, but also because more than a decade ago I read a really great book, Joel Garreau's Edge City: Life on the New Frontier, that was all about how Fairfax and formerly suburban places like it around the country were becoming job centers to rival all but the biggest urban downtowns.
Garreau was (and is) a Washington Post reporter who had previously written The Nine Nations of North America. He was living on a farm in rural Fauquier County, Virginia, and noticing that it wasn't so rural anymore. So he began investigating the horrible developers who were ruining the countryside.
"My plan was, quite seriously, to figure out who was doing this and send the bastards to jail," Garreau said. That's how he came to know John T. "Til" Hazel Jr., who as a lawyer for developers turned back the first wave of anti-growth activism in the region in the 1970s, then went on to great wealth and notoriety as a developer in his own right.
Garreau had expected Hazel to be the devil. "What he turned out to be was the last 19th century man--the last man standing who still believes change equals progress," Garreau recalled. "What Til's generation was doing was building the revenge for the Civil War. And they never wanted to be hungry again."
So that's why I was talking to Hazel. He was down in Florida on vacation; I was on my cell phone, sitting in a rented Ford Escape. "What has happened in our society, on both coasts, is that whenever there is prosperity there is an anti-people movement," he said. "The last guy in doesn't like the next guy coming in."
What was different about northern Virginia was that it was, until World War II, mostly empty and far from prosperous. Post-Civil War enmity and the presence of a Potomac River that didn't have many bridges across it meant that early suburban growth around the District of Columbia occurred almost entirely in Maryland.
Then came the war. The Pentagon was built in Arlington during it, and afterwards it became clear that Washington "was destined to be a world capital," as Hazel put it, and needed room to grow. So it grew in Virginia. Within a couple of decades, some of the early suburban arrivals were fighting the sprawl, but Hazel shut them down with help from pro-growth state laws and a conservative judiciary.
"A lot of these suburbs want to stay suburbs," Hazel said to me. "Our core group in Fairfax didn't want to be thought of forever as a bedroom suburb to Washington." In one sense, it no longer is: The week I visited northern Virginia, the Post ran a front-page story about a Labor Department report pointing out that Fairfax County had become a "job core" that rivals the District.
But Fairfax County certainly isn't spoken of in the same tones as, say, Seattle or Denver--cities with about as much downtown office space as Tysons Corner, Fairfax's main conglomeration of big buildings. And it shouldn't be: It's sprawling, it's ugly, it has no significant cultural institutions other than Wolf Trap, it's impossible to navigate without a car--and around rush hour it can seem impossible to navigate with a car.
Look at it as the first draft of a new kind of city, though, and it's not so bad. "If I thought that this was the final version, I'd slash my throat," said Garreau. In the plans for Tysons now are a Metrorail line, and much denser development. "There's always a second building frenzy that's quite different from the first one, with a whole new set of mistakes. About the seventh time you go through this boom and bust cycle, you end up with Paris or London."
That wonderfully hopeful way of looking at things is one of the things that makes Garreau's Edge City so compelling. I'm a Manhattan-dwelling urban snob, but ever since reading that book I've been a lot more understanding of why people end up in places like northern Virginia. The jobs are there, the housing is affordable, the schools are pretty good, and all that ugliness and chaos might just represent, in its own messy way, progress.
February 9, 2007 12:43
Fiscal policy makes great TV
For fans of my post on the Bush budget a few days back (I'm talking to you, Ezra), it's going multimedia this weekend as I talk about the topic on CNN's In the Money (1 p.m. ET Saturday, 3 p.m. Sunday).
February 8, 2007 5:30
Northern Virginia's vast, taxpayer-funded riches
My second Time column is now online. Here's how it starts:
When the Census Bureau announced last August that northern Virginia's Loudoun County had become the nation's most affluent, with a median household income of $98,483, it was something of a shock to locals. Loudoun is far from exclusive: a third of its 255,000 residents arrived in the past half-decade. The median house sells for $440,000. These Loudounites are not trust-fund babies or Wall Street zillionaires but youngish professionals with kids to raise and mortgages to pay off. Read more.
The column goes on to explain that this mass affluence (Fairfax County, which is just east of Loudoun and has more than a million residents, has a median household income almost as high) is mostly the product of government procurement spending. Which is more than a little unnerving: The most economically successful region of America right now, Northern Virginia, is successful in large part because of deficit spending.
There's more to the story than that. I touch on it only briefly in my column, but there are interesting reasons why most of that economic growth has happened in Virginia instead of Maryland or D.C. proper. I'll post on that aspect in the next couple of days.
Update: Here's the promised post. And here's another.
February 7, 2007 12:52
Doritos stars are born in North Carolina
So I'm down in North Carolina, at something called the Duke MBA Marketing Conference. There are some cool speakers, most entertaining among them Bob Young, who co-founded Red Hat and founded and now runs publisher (for want of a better word) Lulu. But the real stars are the Doritos kids--the ones from that Super Bowl ad.
Michelle Adams, Frito Lay's director of consumer strategy & insights, invited them down from their hometown of Cary, N.C. for the day. I was on the opening panel this morning (topic: long tail yada yada yada). They were sitting a few rows back, and I kept staring at them. There's the cheesy guy who crashed his car (Nick Dimondi)! There's the spicy girl who tripped in the middle of the road (Cori Backus)! Cori really did smack her head on the pavement, by the way. It hurt, she says.
The rest of the Five Point Productions crew that made the ad were Dale Backus (Cori's husband), and the Phillips brothers, Barrett and Wes. Nick and Wes are the oldest of the bunch, at 22, and Nick's the only one who has been to college (Jerry Falwell's Liberty University). The brothers' father, Reed Phillips, provided the funding: $20 for a few bags of Doritos (they gave him back $8 in change).
"I want to meet their dad," said Lulu's Young upon hearing the story, "because I've given my kids $20 before, and they've never created a Super Bowl ad." The senior Phillips also provided something more crucial than petty cash, though: the video editing equipment that his sons and their friends have been playing around with (and growing increasingly expert with) since their pre-teen years.
Much has been made about Frito Lay's decision to use "consumer-generated content" for its Super Bowl ads. But the gang from Cary had actually started up an ad agency in the fall. They were professionals, or at least wannabe professionals. Sure, the Doritos ad contest was an exercise in consumer empowerment. But it was also a way of scouting advertising talent on the cheap. Sort of like a Hollywood agent of old discovering the next big star at the soda fountain at Schwab's.
Update: I learned later that a key to the Five Point gang's success was that they belong to big churches whose congregations voted for them en masse at the Doritos site. So that's another important lesson here: Go to church.
February 6, 2007 3:01
George Bush, deficit-fighter
Okay, here's my big problem with the budget that the Bush administration submitted to Congress yesterday. (No, I didn't read all of it, but I did check out a few highlights.) It makes a big deal about getting rid of the federal deficit by 2012. But guess what: George Bush will have been out of office for three years by then--and the biggest projected reductions in the deficit in his budget all come after he leaves town.
This man gave us the deficit (remember, the federal government was running a surplus when he took office), and now he's got some bold plans for his successor to get rid of it. Now that's what I call a profile in fiscal courage.
I write this as someone who doesn't think the size of the deficits we've been running is all that alarming, and kind of liked some of the Bush tax cuts. But claiming to embrace fiscal discipline after spending six years flouting it, then leaving the toughest decisions to the next president, is cheating. It's also political genius, if the electorate lets you get away with it. But those days seem to be over.