July 11, 2008 8:26

Manhattan is safe... for now

I'm at work late. Why? I don't know. I should go.

Anyway, I'm here, so I saw that Starbucks just announced its first round of store closings. Go here to see if your favorite store is set to be axed. They've only posted the first 50 (out of about 600), so no one is out of the woods yet.

The first volley hit Mobile and Las Vegas particularly hard. Interestingly, none announced so far in Manhattan, which seems like one super-penetrated market that might go for some pruning. As long as it's not the one on 52nd Street just east of 7th Avenue.

Barbara!

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July 11, 2008 5:15

Financial crises are more fun when they involve companies with goofy names like Fannie and Freddie

I've just churned out a quickie Fannie-Freddie analysis for Time.com. Here's how it starts:

All debt issued by mortgage giants Fannie Mae and Freddie Mac comes with a prominent disclaimer: "Not guaranteed by the United States." But the business model of both companies, not to mention the continued functioning of the U.S. mortgage market, depends on nobody quite believing that disclaimer. Wrap your head around that contradiction, and you're well on your way to understanding the Fannie-Freddie drama currently gripping U.S. markets.

Anyway, go read it, if you're into that kind of stuff. Then come back and tell me if I've gotten it all wrong.

Update: Ha! Newsweek's Dan Gross had to write a quickie online Fannie/Freddie explainer too!

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July 11, 2008 4:02

The Establishment Strikes Back, Pete Peterson edition

Last night I stopped off at the launch party of the Peter G. Peterson Foundation at the Council on Foreign Relations (where Peterson was chairman of the board for 22 years). I was underdressed (no tie), plus Thursday night is date night with Mrs. Curious Capitalist so I didn't want to stick around long, so I hung back outside the packed room where Peterson and his top hired hand, former Comptroller General David Walker, held court.

There I was witness to a remarkable parade of latecomers: There's Leonard Lauder! There's Tina Brown and her husband Harold Evans (he's tiny, which must mean he's really smart and capable because we all know the world discriminates in favor of the tall)! There's Tim Geithner (which I took to be a really good sign, because if Lehman or Fannie or Freddie really were about to collapse, he'd still be at the office)! There's Fareed Zakaria, wading into the crowd and coming back out with Richard Holbrooke in tow! Not to mention early-leaver Bob Rubin, who was headed out of the building as I went in. And the hundreds of people inside the room whom I never got a good look at.

In short, Peterson seemed to have dragged all of Establishment New York out for his foundation's coming-out party. And more power to him. After taking in $1.9 billion from investors here and overseas when Blackstone Group, which he co-founded, went public last year, he now plans to spend about $1 billion trying to convince Americans to wean their government and themselves from mortgaging their future to investors here and, in particular, overseas. "We're a startup, although we're an adequately capitalized startup," is how Walker, the president of the foundation, put it. Peterson called it "a special interest for the general interest."

Peterson is a Republican; he was Commerce Secretary in the Nixon Administration. But for the past two decades he has been battling his party's newfound love affair with chronic budget deficits. He co-founded the deficit-hating Concord Coalition together with Democrat Paul Tsongas and Republican Warren Rudman in 1992. And he's no fan at all of the current administration's taxing and spending policies. "Today we've done LBJ one better," he said last night. "We want guns, butter and tax cuts."

It's a sentiment I generally agree with. I'm a little bit troubled by the whole guy-who-benefited-from-a-tax-loophole-lecturing-us-about-fiscal-discipline thing, and the fact that we seemingly need billionaires to bankroll our "grassroots" movements these days. But there are far worse things the man could have spent his $1 billion on.

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July 11, 2008 8:00

The much-ignored problem of wasteful underuse

Justin may have a column in this week's magazine, but I have a 200-word book review. Here, I'll give you the whole thing:

When no one owns a resource, we tend to overuse it--winding up with polluted skies, fished-out oceans and battles over access to freshwater. But too much ownership leads to problems too. A pharmaceutical company is stymied by a web of patents and doesn't make a drug. An airport can't buy land for a new runway to ease congestion because dozens of people own slivers of property. A production house, faced with a mishmash of music-licensing rights, keeps an old sitcom from DVD.

In THE GRIDLOCK ECONOMY (Basic Books; 259 pages), Columbia Law School's Michael Heller documents such "wasteful underuse" and the straitjacket it puts on innovation. His examples resemble pastures in which each square inch is owned by a different rancher: useless.
The solution, free-marketeers will be glad to know, isn't less ownership but better ways to aggregate it. Consider the patent pool created in 1917 that let airplanemakers swap technology and share profits without threat of litigation. For property use, Heller imagines something like a co-op board for landowners. Suddenly, there's someone in charge to talk to--and maybe that airport gets its runway.

You might recognize that first notion—people overusing resources no one owns—as Garrett Hardin's "tragedy of the commons." Hardin, a biologist, first used the term in a 1968 article in Science.

In homage, Heller calls his idea the "tragedy of the anti-commons," a term he first used in the Harvard Law Review in 1998. (You can read that article by going here and linking to the PDF at the bottom of the page.)

One of Heller's big hopes is that by giving a name to this habit of underusing resources that have too many owners, we might start noticing the pattern where we had previously overlooked it. Kind of like the term "tragedy of the commons" helped feed the environmental movement. Or, more recently, how you can't swing a dead cat without hitting a "tipping point."

It's interesting to think how wordedness determines the way we process the world. Okay, I think it's interesting. And so does Michael Heller. When I took a trip up to Columbia to chat with him, he pointed out that the word "underuse" is only now working its way into parlance—it appears in some dictionaries but not in others. For Scrabble players, it became an acceptable move just three years ago. Maybe the revolution starts with The Gridlock Economy.

While I was up at Columbia, I grabbed some video of Heller talking about his book. For your viewing pleasure:

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July 11, 2008 7:07

New column: How's the Dodd-Frank housing bill? Compared to what?

My new column is in the issue of TIME with Nelson Mandela on the cover and online here. It begins:

Barney Frank is on the line. I ask the Massachusetts Democrat, who chairs the House Financial Services Committee, if he thinks the housing bill that he and Senator Chris Dodd are on the verge of pushing through Congress will really do much good. Frank first trots out a joke from the late comedian Henny Youngman: "How's your wife?" Answer: "Compared to what?" Then he gets a bit more serious. "Do I think it's gonna have a great impact?" he says. "It's gonna have an impact. I think it will be helpful."

It's not the most rousing endorsement. But it's probably a fair assessment, at least for the centerpiece of the sprawling legislation--a plan to use the insurance guarantees of the Federal Housing Administration (FHA) to entice lenders to renegotiate up to $300 billion in troubled home loans. It might do some good, and the fact that Frank can't bring himself to say more may have less to do with the legislation itself than with the immensity of the problem Congress is trying to address.

The problem is that, from 2003 through 2006, mortgage lenders extended trillions of dollars in loans that they never should have made, driving house prices to unsustainable levels in many areas. Now millions of borrowers can't make their payments, prices are plunging, and the global financial system is finding out how dependent it had become on dodgy U.S. mortgages.

This correction process--in which both homeowners and lenders eat losses on their investments--can't be stopped entirely. It shouldn't be stopped, and going forward, a major priority for regulators will be averting such lending binges--as new, tougher mortgage rules from the Federal Reserve aim to do. But at the same time, many on Wall Street and in Washington fear that the correction could careen into an economic cataclysm. That's why the Fed has intervened at the top of the financial food chain by cutting interest rates and bankrolling a shotgun takeover of the investment bank Bear Stearns. And it's why there's been lots of talk in Washington about doing something--anything--to slow the tide of mortgage foreclosures. Read more.

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