Best Books of 2008 Complete Holiday Book Recommendations 2008
NPR.org, November 19, 2008 · Below you can find the complete list of recommended reading for the 2008 Holidays. To print this list, choose the "Print Page" icon in the upper right-hand corner. Click on the titles to read an excerpt from the book.
Recommended by Nancy Pearl
("Books Beneath The Reading Radar")
Alice in Sunderland: An Entertainment, by Bryan Talbot, hardcover, 319 pages, Dark Horse Comics, list price: $29.95
Borges and the Eternal Orangutans, by Luis Fernando Verissimo, translated from the Portuguese by Margaret Jull Costa, paperback, 144 pages, New Directions, list price: $13.95
The Broken Shore, by Peter Temple, paperback, 368 pages, Picador, list price: $14.00
Firmin, by Sam Savage, illustrated by Michael Mikolowski, paperback, 162 pages, Coffee House Press, list price: $14.95
The Ghost in Love, by Jonathan Carroll, hardcover, 320 pages, Farrar, Straus and Giroux, list price: $25.00
The Ginseng Hunter, by Jeff Talarigo, hardcover, 192 pages, Doubleday, list price: $21.95
The Lost Spy: An American in Stalin's Secret Service, by Andrew Meier, hardcover, 304 pages, W. W. Norton & Company, list price: $25.95
Previously, by Allan Ahlberg, illustrated by Bruce Ingman, hardcover, 32 pages, Candlewick Press, list price: $16.99
Recommended by Karen Grigsby Bates
("Five Books To Give Yourself This Year")
American Wife by Curtis Sittenfeld, Random House, Hardcover, 558 pages, list price $26.00
Tallgrass by Sandra Dallas, St. Martin's Press, paperback, 336 pages, list price: $13.95
I See You Everywhere by Julia Glass, Knopf, hardcover, 304 pages, list price: $24.95
Unaccustomed Earth by Jhumpa Lahiri, Knopf, hardcover, 352 pages, list price: $25
Mrs. Astor Regrets: The Hidden Betrayals of a Family Beyond Reproach by Meryl Gordon, Houghton Mifflin, hardcover, 336 pages, list price: $28.00
Recommended by Laurel Maury
("Best Superhero Graphic Novels Of 2008")
Read a graphic excerpt of Joker by Brian Azzarello and Lee Bermejo, hardcover, 128 pages, DC Comics, list price: $19.99
Read a graphic excerpt of The Death Of Captain America, Vol. #1, #2, & #3 by Ed Brubaker, Steve Epting and Mike Perkins, paperback, 464 total pages, Marvel Comics, list prices: $14.99 (vol. #1 and #2); $19.99 (vol. #3)
Read a graphic excerpt of Runaways: Dead End Kids by Joss Whedon and Michael Ryan, hardcover, 152 pages, Marvel Comics, list price: $19.99
Read a graphic excerpt from Black Summer by Warren Ellis and Juan Jose Ryp, paperback, 192 pages, Avatar, list price: $24.99
Read a graphic excerpt of Superman and the Legion of Super-Heroes by Geoff Johns and Gary Frank, hardcover, 168 pages, DC Comics, list price: $24.99
Recommended by Maureen Corrigan
("Best Books Of 2008")
Netherland, by Joseph O'Neill, Knopf, hardcover, 272 pages, list price: $23.95
Unaccustomed Earth by Jhumpa Lahiri, Knopf, Hardcover, 352 pages, list price: $25
Say You're One of Them, by Uwem Akpan, Little, Brown & Co., hardcover, 368 pages, list price: $23.99
The Elegance of the Hedgehog, by Muriel Barbery, translated from the French by Alison Anderson, Europa Editions, paperback, 336 pages, list price: $15
Indignation, by Philip Roth, Houghton Mifflin, hardcover, 256 pages, list price: $26
An Exact Replica of a Figment of My Imagination, by Elizabeth McCracken, Little, Brown & Co., hardcover, 184, list price: $19.99
White Heat: The Friendship of Emily Dickinson and Thomas Wentworth Higginson by Brenda Wineapple, Knopf, hardcover, 416 pages, list price: $27.95
World War II Writings by A.J. Liebling, edited by Pete Hamill, Library of America, hardcover, 1,100 pages, list price: $40
Recommended by Troy Patterson
("Best Collections Of Literary Letters 2008")
Words in Air: The Complete Correspondence Between Elizabeth Bishop and Robert Lowell, edited by Thomas Travisano with Saskia Hamilton, hardcover, 928 pages, Farrar, Straus and Giroux. List price: $45
Can You Ever Forgive Me?: Memoirs of a Literary Forger, by Lee Israel, hardcover, 144 pages, Simon & Schuster. List price: $19.95
Dear American Airlines, by Jonathan Miles, hardcover, 192 pages, Houghton Mifflin. List price: $22
Graham Greene: A Life In Letters, edited by Richard Greene, hardcover, 480 pages, W.W. Norton. List price: $35
The Timewaster Letters, by Robin Cooper, paperback, 192 pages, Chicago Review Press. List price: $11.95
Recommended by Booksellers to Susan Stamberg
("Booksellers' Picks For Your Holiday Lists")
All Art Is Propaganda: Critical Essays, by George Orwell, hardcover, 416 pages, Houghton Mifflin Harcourt. List price: $25
The Cellist of Sarajevo, by Steven Galloway, hardcover, 256 pages, Riverhead Books. List price: $21.95
Downtown Owl, by Chuck Klosterman, hardcover, 257 pages, Simon & Schuster. List price: $24
Esther's Inheritance, by Sandor Marai, translated by George Szirtes, hardcover, 160 pages, Knopf. List price: $24
The Ecco Anthology of Contemporary American Short Fiction, edited by Joyce Carol Oates, paperback, 784 pages, Harper Perennial. List price: $18.95
The Economist Book of Obituaries, by Keith Colquhoun and Ann Wroe, hardback, 409 pages, Bloomberg Press. List price: $29.95
The Gargoyle, by Andrew Davidson, hardcover, 468 pages, Doubleday Publishing. List price: $25.95
Gone Tomorrow, by P. F. Kluge, hardcover, 368 pages, Overlook Press. List price: $25.95
The Man Who Invented Christmas, by Les Standiford, hardcover, 256 pages, Crown Publishing. List price: $19.95
Mudbound, by Hillary Jordan, hardcover, 336 pages, Workman Publishing Inc. List price: $22.95
The Oxford Project, photographs by Peter Feldstein, text by Stephen G. Bloom, hardcover, 264 pages, Welcome Books. List price: $50
Pinocchio, by Carlo Collodi, translated by Geoffrey Brock, introduction by Umberto Eco, afterword by Rebecca West, paperback, 208 pages, New York Review Books Classics. List price: $14
Serena, by Ron Rash, hardcover, 384 pages, Ecco. List price: $24.99
So Brave, Young, and Handsome, by Leif Enger, hardcover, 287 pages, Grove/Atlantic. List price: $24
A Splintered History of Wood: Belt Sander Races, Blind Woodworkers, and Baseball Bats, by Spike Carlsen, hardcover, 432 pages, HarperCollins. List price: $24.95
Recommended by John McAlley
("The Big Pictures: Best Gift Books 2008")
ABC3D, by Marion Bataille, hardcover, 36 pages, 7.5 x 5.9 inches, Roaring Brook Press, list price: $19.95
Annie Leibovitz At Work, by Annie Leibovitz, hardcover, 240 pages, 9.5 x 7.5 inches, Random House, list price: $40.00
Art of the Modern Movie Poster, by Judith Salavetz, Spencer Drate and Sam Sarowitz with text by Dave Kehr, hardcover, 16 pages, 13.25 x 11.3 inches, Chronicle Books, list price: $75.00
Dilbert 2.0: 20 Years of Dilbert, by Scott Adams, hardcover in slipcase, 576 pages, 13.5 x 10.5 x 2 inches, Andrews McMeel Publishing, list price: $85.00
The Nancy Book, by Joe Brainard, hardcover, 144 pages, 9.75 x 7.5 x 0.5 inches, Siglio Press, list price: $39.50
The New York Times: The Complete Front Pages: 1851—2008, introduction by Bill Keller, hardcover, 456 pages and three DVD-ROMs, 15 x 12 inches, Black Dog & Leventhal, list price: $60.00
Not Quite What I Was Planning: Six-Word Memoirs By Writers Famous & Obscure, edited by Smith Magazine, hardcover, 256 pages, 7.25 x 5 x 1.1 inches, Harper, list price: $16.95
The Oxford Project, photographs by Peter Feldstein, text by Stephen G. Bloom, hardcover, 264 pages, 12.8 x 10 x 1.2 inches, Welcome Books, list price: $50.00
Over: The American Landscape at the Tipping Point, by Alex S. MacLean, introduction by Bill McKibbon, hardcover, 336 pages, 13.2 x 9.2 inches, Abrams, list price: $45.00
Performance: Richard Avedon, hardcover, 304 pages, 13 x 10.5 inches, Abrams, list price: $75.00
The Phaidon Atlas of 21st Century World Architecture, by the editors of Phaidon Press, hardcover, 800 pages, 19.2 x 16.1 x 2.5 inches (without case), Phaidon Press, list price: $195.00
A Road Trip Journal, photographs and text by Stephen Shore, limited edition hardcover, 256 pages, 17.2 x 12.1 x 2.1 inches, Phaidon Press, list price: $250
Seen Behind the Scene: Forty Years of Photographing on Set, by Mary Ellen Mark, hardcover, 264 pages, 11.6 x 8.7 inches, Phaidon Press, list price: $59.95
State By State: A Panoramic Portrait of America, edited by Matt Weiland and Sean Wilsey, hardcover, 574 pages, 9.25 x 6.25 inches, Ecco, list price: $29.95
A Supposedly Fun Thing I'll Never Do Again: Essays and Arguments, by David Foster Wallace, paperback, 368 pages, 9 x 6 x 1 inches, Back Bay Books, list price: $14.99
Things I Have Learned In My Life So Far, by Stefan Sagmeister, paperback, 246 pages, 9.5 x 7 inches, Abrams, list price: $40.00
Wham-O Super-Book: Celebrating 60 Years Inside the Fun Factory, by Tim Walsh, paperback, 192 pages, 8.5 x 8.5 inches, Chronicle Books, list price: $19.95
Recommended by Maureen Corrigan
("Top Five Crime And Mystery Novels Of 2008")
The Chinaman, by Friedrich Glauser, translated from the German by Mike Mitchell, paperback, 186 pages, List Price: $14.95
Death Vows, by Richard Stevenson, paperback, 212 pages, List Price: $14.99
The Girl with the Dragon Tattoo, by Stieg Larsson, translated from the Swedish by Reg Keeland, hardcover, 463 pages, List Price: $24.95
Small Crimes, by Dave Zeltserman, paperback, 272 pages, List Price: $14.95
The Long Embrace: Raymond Chandler and the Woman He Loved, by Judith Freeman, paperback, 368 pages, List Price: $14.95
Recommended by Alan Cheuse
("Give A Book (And Yourself) This Holiday Season")
Dear Darkness, by Kevin Young, hardcover, 216 pages, List Price: $26.95
Hallelujah Junction: Composing an American Life, by John Adams, hardcover, 352 pages, $26.00
John Lennon: The Life, by Philip Norman, hardcover, 822 pages, $34.95
Just After Sunset, by Stephen King, hardcover, 384 pages, $28.00
Katherine Anne Porter: Collected Stories and Other Writings, by Katherine Anne Porter, hardcover, 1100 pages, $40.00
Still Alive!: A Temporary Condition , by Herbert Gold, hardcover, 250 pages, $25.00
Stories, by Doris Lessing, hardcover, 680 pages, $26.00
Supreme Courtship, by Christopher Buckley, hardcover, 304 pages, $24.99
Who We Were: A Snapshot History of America, by Michael Williams, Richard Cahan, & Nicholas Osborn, hardcover, 240 pages, $45.00
Recommended by T. Susan Chang
("The 10 Best Cookbooks of 2008")
660 Curries: The Gateway to Indian Cooking, by Raghavan Iyer, paperback, 816 pages, List Price: $22.95
Baked: New Frontiers in Baking, by Matt Lewis and Renato Poliafito, hardcover, 208 pages, List Price: $29.95
How to Cook Everything: 2,000 Simple Recipes for Great Food (Completely Revised 10th Anniversary Edition), Mark Bittman, hardcover, 1,056 pages, List Price: $35.00
A Master Class: Sensational Recipes from the Chefs of the New England Culinary Institute, by Ellen Michaud, hardcover, 292 pages, List Price: $35.00
The Splendid Table's How to Eat Supper: Recipes, Stories, and Opinions from Public Radio's Award-Winning Food Show, by Lynne Rossetto Kasper and Sally Swift, hardcover, 352 pages, List Price: $35.00
The Spice Merchant's Daughter: Recipes and Simple Spice Blends for the American Kitchen, by Christina Arokiasamy, hardcover, 240 pages, List Price: $29.95
Secrets of the Red Lantern: Stories and Vietnamese Recipes from the Heart, by Pauline Nguyen, hardcover, 344 pages, List Price: $40.00
The Sweet Melissa Baking Book, Recipes from the Beloved Bakery for Everyone's Favorite Treats by Melissa Murphy, hardcover, 256 pages, List Price: $27.00
Ten: All the Foods We Love and 10 Perfect Recipes for Each, by Sheila Lukins, paperback, 416 pages, List Price: $19.95
Two Dudes, One Pan: Maximum Flavor from a Minimalist Kitchen, by Jon Shook & Vinny Dotolo, paperback, 240 pages, List Price: $24.95
Recommended by Jessa Crispin
("Best Foreign Fiction, 2008")
Senselessness, by Horacio Castellanos Moya, translated from the Spanish by Katherine Silver, paperback, 142 pages, List Price: $15.95
Kieron Smith, boy, by James Kelman, hardcover, 432 pages, List Price: $26.00
2666, by Roberto Bolaño, translated from the Spanish by Natasha Wimmer, hardcover, 912 pages, List Price: $30.00
Metropole, by Ferenc Karinthy, translated from the Hungarian by George Szirtes, paperback, 279 pages, List Price: $14.95
The Lost Daughter, by Elena Ferrante, translated from the Italian by Ann Goldstein, paperback, 204 pages, List Price: $14.95
Recommended by Simon Maxwell Apter
("Best Political And Current Affairs Books Of 2008")
The Forever War, by Dexter Filkins, hardcover, 384 pages
An Imperfect Offering: Humanitarian Action for the Twenty-First Century, by James Orbinski, M.D., hardcover, 448 page
Nixonland: The Rise of a President and the Fracturing of America, by Rick Perlstein, hardcover, 896 pages
The Dark Side: The Inside Story of How the War on Terror Turned Into a War on American Ideals, by Jane Mayer, hardcover, 400 pages
The Bin Ladens: An Arabian Family in the American Century, by Steve Coll, hardcover, 688 pages
Recommended by John Freeman
("Migration And Memory: Top Five 2008 Books")
Netherland,, by Joseph O'Neill, hardcover, 272 pages, $23.95
Basrayatha: The Story of a City, by Muhammad Khudayyir, paperback, 176 pages, $15.95
Unaccustomed Earth, by Jhumpa Lahiri, hardcover, 352 pages, $25.00
Palestinian Walks: Forays into a Vanishing Landscape, by Raja Shehadeh, paperback, 224 pages, $15.00
Blood Dazzler, by Patricia Smith, paperback, 90 pages, $16.00
Recommended by Laurel Maury
("Best Graphic Novels Of 2008")
Skyscrapers of the Midwest, by Joshua W. Cotter, Adhouse Books, 282 pages, $19.95
Local, by Brian Wood and Ryan Kelly, Oni Press, 374 pages, $29.99
Good-Bye, by Yoshihiro Tatsumi, Drawn and Quarterly, 204 pages, $19.95
Alan's War: The Memories of G.I. Alan Cope, by Emmanuel Guibert, First Second, paperback, 304 pages, $24.00
Heavy Liquid, by Paul Pope, Vertigo, 256 pages, $39.99
Recommended by Maureen Corrigan
("Best Books For A Transformative New Year")
The Tribes of America: Journalistic Discoveries of Our People and Their Cultures, by Paul Cowan, The New Press, 311 pages, list price: $16.95
Hunger of Memory, by Richard Rodriguez, Dial Press, 1982, Paperback 2005, 212 pages, list price: $15.00
American Crucible: Race and Nation in the Twentieth Century, by Gary Gerstle, Princeton University Press, paperback, 2002, 454 pages
The Wordy Shipmates, by Sarah Vowell, Riverhead Books, 254 pages, list price: $25.95
http://www.npr.org/templates/story/story.php?storyId=97212769
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Wednesday, November 19, 2008
Tuesday, November 18, 2008
A British Lesson on Auto Bailouts By NELSON D. SCHWARTZ
The New York Times
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November 18, 2008
A British Lesson on Auto Bailouts By NELSON D. SCHWARTZ
PARIS — A faltering auto giant whose brands are synonymous with the open road. Hundreds of thousands of unionized workers with powerful political backers. An urgent plea for the government to write a virtual blank check.
This is not the story of Ford and General Motors, but British Leyland, a car company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business. All that is left of the company now are memories of cars like the Triumph, and a painful lesson in the limited effectiveness of bailouts.
“It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but the lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”
Other experts are sounding the same alarm. “The British Leyland experience is a relevant and cautionary one,” said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group in New York. “The government got in the business of trying to make a winner out of a structurally flawed company. That’s the risk in the U.S. as well.”
Though Continental automakers have fared better than British ones, Mr. Casesa argues that the long history of government support in Europe made companies like Renault and Fiat strong players in their home markets, but not worldwide.
“With the exception of BMW and Mercedes, European automakers haven’t been globally successful,” he said. “Nor have they been hugely profitable.”
That comparative history is receiving new attention as Congress turns its attention this week to the fate of Detroit.
The British Leyland bailout remains the classic example of a futile government intervention. The tight cooperation between governments and automakers on the Continent has produced happier results.
For half a century after World War II, the French government was the majority stakeholder in Renault, and Paris still holds a 15 percent stake in the company. In the 1980s, the company received a bailout equal to nearly 4 billion euros, or $5.1 billion in today’s money. Now it is highly profitable — at least compared with its American counterparts.
Today, G.M.’s German subsidiary, Opel, is appealing to Berlin for help, seeking more than 1 billion euros in credit guarantees, according to Carl-Peter Forster, G.M.’s European chief.
Monday, Chancellor Angela Merkel of Germany said her government would make a decision before Christmas.
“It’s not decided yet whether these loan guarantees will become necessary,” Mrs. Merkel told reporters in Berlin after meeting with Mr. Forster and other management and labor officials.
“If these guarantees become necessary, those funds should remain within Opel” in Germany, she added, echoing a concern some Americans have expressed that any United States bailout money go only to American automakers.
So far, Asian companies have not complained that such a bailout would amount to an anticompetitive subsidy. But José Manuel Barroso, president of the European Commission, said last week that he thought an aid package for Detroit could be “illegal” under World Trade Organization rules.
That has not stopped European automakers from seeking 40 billion euros in loans from the European Investment Bank, ostensibly to help develop cleaner cars.
For Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales, the trajectory of General Motors is reminiscent of British Leyland not only because of the former’s decision to seek aid to avert bankruptcy, but also for its slow, seemingly inexorable loss of market share. “Both had a history of being the biggest in their market but couldn’t adapt as they lost sales,” he said. “They couldn’t get customers back.”
Historically, British Leyland’s roots stretched back further than Henry Ford’s Model T. The company controlled 36 percent of the British market well into the 1970s, with mass-market brands like Austin and Morris and premium lines like MG and Jaguar. But rising competition from Japanese and German automakers, shoddy workmanship and a breakdown in labor relations brought the company to near bankruptcy by 1975, Mr. Rhys said.
Michael Edwardes, who took over as British Leyland’s chief executive in November 1977, recalled that when he joined, no one even knew whether individual brands were profitable. “It was a farce — no one knew what the costs were,” he said.
As it turned out, every MG the company sold in the United States resulted in a loss of $2,000 for British Leyland.
Wildcat strikes consumed more than 32 million worker-hours in 1977, and the company became a symbol of labor strife, with some employees walking out the door with spark plugs in their coat pockets and engines in the trunks of their cars, Mr. Edwardes said.
Mr. Edwardes immediately began reducing the company’s work force of roughly 200,000 — to 104,000 within five years — and closing 19 factories. He appealed to the Thatcher government for aid, arguing the money was needed if British Leyland was going to be able to afford to lay off workers while investing in new models.
Eventually, the government put up £3.6 billion, equal to £11 billion in today’s money. But the rescue did not do much to preserve British Leyland’s labor force or market share in the long term.
By the time it received its last government infusion of cash in 1988, Mr. Rhys said, British Leyland’s market share had slumped to 15 percent. British Leyland evolved into MG Rover, which was eventually acquired by BMW, then spun off, finally going bankrupt in 2005.
According to Mr. Rhys, just 22,000 workers remain at British Leyland’s successor companies, about 10 percent of its work force in the mid-1970s.
“It was a very poor return,” he said. “We felt collectively and nationally that we got our fingers burnt, and this was always used as a reason to avoid bailouts, both by Labor and Conservative governments in Britain.”
Mr. Edwardes still defends the government aid, arguing it preserved parts of the company that remain in business now — like Jaguar and Land Rover, which were bought by Ford.
Jaguar never made a profit for Ford, however, and was sold with Land Rover to Tata Motors of India earlier this year. Ford recouped only about half of what it paid to acquire the two brands, and is estimated to have poured $10 billion into Jaguar.
Despite the British experience, the case of Renault, which combined fresh money and new management in the 1980s, showed that government bailouts can be beneficial.
The French government help for Renault also came amid increasing losses for the company. But Mr. Rhys said that unlike British Leyland, Renault was able to use the financing to create new car models that were ultimately successful. That, along with tough cost-cutting by a newly installed chairman, cleared the road to profitability by the time the government began privatizing Renault in the 1990s.
If Washington does go ahead and help Detroit, Mr. Edwardes said, it is crucial that the government overhaul the management of the Big Three. “Throwing money at them isn’t enough,” he said. “They need money and they need new management. They need both, not one or the other.”
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November 18, 2008
A British Lesson on Auto Bailouts By NELSON D. SCHWARTZ
PARIS — A faltering auto giant whose brands are synonymous with the open road. Hundreds of thousands of unionized workers with powerful political backers. An urgent plea for the government to write a virtual blank check.
This is not the story of Ford and General Motors, but British Leyland, a car company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business. All that is left of the company now are memories of cars like the Triumph, and a painful lesson in the limited effectiveness of bailouts.
“It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but the lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”
Other experts are sounding the same alarm. “The British Leyland experience is a relevant and cautionary one,” said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group in New York. “The government got in the business of trying to make a winner out of a structurally flawed company. That’s the risk in the U.S. as well.”
Though Continental automakers have fared better than British ones, Mr. Casesa argues that the long history of government support in Europe made companies like Renault and Fiat strong players in their home markets, but not worldwide.
“With the exception of BMW and Mercedes, European automakers haven’t been globally successful,” he said. “Nor have they been hugely profitable.”
That comparative history is receiving new attention as Congress turns its attention this week to the fate of Detroit.
The British Leyland bailout remains the classic example of a futile government intervention. The tight cooperation between governments and automakers on the Continent has produced happier results.
For half a century after World War II, the French government was the majority stakeholder in Renault, and Paris still holds a 15 percent stake in the company. In the 1980s, the company received a bailout equal to nearly 4 billion euros, or $5.1 billion in today’s money. Now it is highly profitable — at least compared with its American counterparts.
Today, G.M.’s German subsidiary, Opel, is appealing to Berlin for help, seeking more than 1 billion euros in credit guarantees, according to Carl-Peter Forster, G.M.’s European chief.
Monday, Chancellor Angela Merkel of Germany said her government would make a decision before Christmas.
“It’s not decided yet whether these loan guarantees will become necessary,” Mrs. Merkel told reporters in Berlin after meeting with Mr. Forster and other management and labor officials.
“If these guarantees become necessary, those funds should remain within Opel” in Germany, she added, echoing a concern some Americans have expressed that any United States bailout money go only to American automakers.
So far, Asian companies have not complained that such a bailout would amount to an anticompetitive subsidy. But José Manuel Barroso, president of the European Commission, said last week that he thought an aid package for Detroit could be “illegal” under World Trade Organization rules.
That has not stopped European automakers from seeking 40 billion euros in loans from the European Investment Bank, ostensibly to help develop cleaner cars.
For Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales, the trajectory of General Motors is reminiscent of British Leyland not only because of the former’s decision to seek aid to avert bankruptcy, but also for its slow, seemingly inexorable loss of market share. “Both had a history of being the biggest in their market but couldn’t adapt as they lost sales,” he said. “They couldn’t get customers back.”
Historically, British Leyland’s roots stretched back further than Henry Ford’s Model T. The company controlled 36 percent of the British market well into the 1970s, with mass-market brands like Austin and Morris and premium lines like MG and Jaguar. But rising competition from Japanese and German automakers, shoddy workmanship and a breakdown in labor relations brought the company to near bankruptcy by 1975, Mr. Rhys said.
Michael Edwardes, who took over as British Leyland’s chief executive in November 1977, recalled that when he joined, no one even knew whether individual brands were profitable. “It was a farce — no one knew what the costs were,” he said.
As it turned out, every MG the company sold in the United States resulted in a loss of $2,000 for British Leyland.
Wildcat strikes consumed more than 32 million worker-hours in 1977, and the company became a symbol of labor strife, with some employees walking out the door with spark plugs in their coat pockets and engines in the trunks of their cars, Mr. Edwardes said.
Mr. Edwardes immediately began reducing the company’s work force of roughly 200,000 — to 104,000 within five years — and closing 19 factories. He appealed to the Thatcher government for aid, arguing the money was needed if British Leyland was going to be able to afford to lay off workers while investing in new models.
Eventually, the government put up £3.6 billion, equal to £11 billion in today’s money. But the rescue did not do much to preserve British Leyland’s labor force or market share in the long term.
By the time it received its last government infusion of cash in 1988, Mr. Rhys said, British Leyland’s market share had slumped to 15 percent. British Leyland evolved into MG Rover, which was eventually acquired by BMW, then spun off, finally going bankrupt in 2005.
According to Mr. Rhys, just 22,000 workers remain at British Leyland’s successor companies, about 10 percent of its work force in the mid-1970s.
“It was a very poor return,” he said. “We felt collectively and nationally that we got our fingers burnt, and this was always used as a reason to avoid bailouts, both by Labor and Conservative governments in Britain.”
Mr. Edwardes still defends the government aid, arguing it preserved parts of the company that remain in business now — like Jaguar and Land Rover, which were bought by Ford.
Jaguar never made a profit for Ford, however, and was sold with Land Rover to Tata Motors of India earlier this year. Ford recouped only about half of what it paid to acquire the two brands, and is estimated to have poured $10 billion into Jaguar.
Despite the British experience, the case of Renault, which combined fresh money and new management in the 1980s, showed that government bailouts can be beneficial.
The French government help for Renault also came amid increasing losses for the company. But Mr. Rhys said that unlike British Leyland, Renault was able to use the financing to create new car models that were ultimately successful. That, along with tough cost-cutting by a newly installed chairman, cleared the road to profitability by the time the government began privatizing Renault in the 1990s.
If Washington does go ahead and help Detroit, Mr. Edwardes said, it is crucial that the government overhaul the management of the Big Three. “Throwing money at them isn’t enough,” he said. “They need money and they need new management. They need both, not one or the other.”
A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11 By ANDREW ROSS SORKIN
The New York Times
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November 18, 2008
Dealbook Column
A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11 By ANDREW ROSS SORKIN
Tony Cervone, a spokesman for General Motors, has a warm and friendly way to summarize his ailing company’s ongoing dance with disaster.
“The fact is we’re looking at a short-term liquidity crisis that needs a bridge loan,” Mr. Cervone said this weekend to The Detroit Free Press.
To him, G.M. is merely in a temporary bind. If the government — that is, taxpayers — were just willing to spot G.M. some cash to get it over this little rough patch, everything would be just fine.
Mr. Cervone’s comment reflects what’s wrong with the mind-set in Detroit.
G.M is using money so quickly that a $10 billion infusion made today would disappear by February. That is why taxpayers shouldn’t fork over a cent, at least until shareholders are wiped out, management is tossed out and the industry is completely reorganized.
But there is a fix. Call it a government-sponsored bankruptcy, a G.S.B., if you will. It might sound a bit like an oxymoron, but it is an idea that has been quietly making the rounds in Washington. It makes a lot of sense.
Here’s how it could work:
First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing — indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger.
Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.
So, first, the government would force G.M into a prepackaged bankruptcy now — even before policy makers may think it needs to be. As an inducement, the government would allow the merger with Chrysler to go forward. (There’s a lot of resistance to saving Chrysler too, but we need to look at the industry as a whole. And don’t worry: Cerberus, the private equity firm that owns Chrysler, would have its equity wiped out too.)
The merger should reduce costs by as much as $7 billion. But that’s not the tough stuff. The harder decisions are these: Both companies would have to jettison brands — lots of them. In the case of G.M., frankly, the only ones worth saving are Cadillac, Chevy and Buick. (Buick? Yes. Despite its lackluster sales and fuddy-duddy image in the United States, it’s a huge seller in China.)
That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.’s brands from eight to three would bring down the company’s cost base by $5 billion annually. If you’re able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler’s minivan business could be combined into the Chevy brand as well.
In all, the 35 plants of G.M. and Chrysler would probably be cut by half.
Then the auto workers, whose benefits are off the charts.
G.M. currently employs about 8,000 people who actually don’t come to work. Those who do go to work are paid about $10 to $20 an hour more than people who do the same job building cars in the United States for foreign makers like Toyota. At G.M., as of 2007, the average worker was paid about $70 an hour, including health care and pension costs.
Those costs are already coming down slightly because of a renegotiated deal with U.A.W. last year, but not nearly enough.
Part of the problem is summed up by comments like this one in The Detroit Free Press, made by Kandy O’Neill, 39, an assembler at G.M.’s plant in Lake Orion, Mich., where she builds the Chevy Malibu and Pontiac G6. “I think we’ve given enough,” she said about the cuts to her salary and pension plan.
“Everybody wants to come down hard on the workers,” she said. “Nobody knows what we do inside there but the people who work there. It’s hard. It is not an easy job.”
When you read a line like that you might sympathize with her, but then you realize that nothing can be accomplished without bankruptcy. Ms. O’Neill: your company is asking the taxpayers — many of whom don’t have health care coverage — to pay your salary and health insurance.
And then we need these companies to agree to serious, strict enforcement of gas mileage standards. They should be producing the cleanest cars on the street. We may lose hundreds of thousands of jobs in this industry in the near term, but with the right kind of innovation, we should have millions of new jobs in the next 10 years.
Finally, we need to kick out management. That Rick Wagoner, chief executive of G.M., can say with a straight face that he still deserves to run this company is laughable. It would be impossible for him to put in place the serious changes that need to be made because he carries too much baggage. He’d have to undo years of his own neglect.
After all that is agreed, and only then, the government should come in with what’s known as debtor-in-possession financing to help the company through the bankruptcy process. Ideally, the government would be a “seed investor” and others would join it.
The goal should not be to keep these companies from filing Chapter 11, but from filing for Chapter 7 — which would mean liquidation.
With the debt market virtually closed, this is the time the government can come in and try to help. But to jump in front of the train now, without the requisite changes made to the industry first — which we all know can’t be done without Chapter 11 — would be foolish.
The automobile industry has argued that bankruptcy will be a disaster for the industry; that people won’t buy vehicles while they’re in bankruptcy for fear that the warranty won’t mean anything. There’s a fix for that too. The government should establish a warranty insurance fund that would insure the warranties of all G.M. and Chrysler vehicles bought while the combined company is still operating under bankruptcy protection. The cost to taxpayers should be next to nothing, assuming the company survives and can takeover the warranty obligations.
The government also should consider using some of the money for the financial industry rescue not to save the companies, but to retrain employees in the Detroit area and help promote development of new industry. A lot of people complain about the role of government in business and free markets. But it is hard to complain about efforts to make the nation’s workforce more employable.
Barack Obama, on “60 Minutes” Sunday night, said that government assistance must be “conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan.” He said, “So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere.”
Take note, Mr. Cervone: that bridge is called Chapter 11.
The latest news on mergers and acquisitions can be found at nytimes.com/dealbook
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November 18, 2008
Dealbook Column
A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11 By ANDREW ROSS SORKIN
Tony Cervone, a spokesman for General Motors, has a warm and friendly way to summarize his ailing company’s ongoing dance with disaster.
“The fact is we’re looking at a short-term liquidity crisis that needs a bridge loan,” Mr. Cervone said this weekend to The Detroit Free Press.
To him, G.M. is merely in a temporary bind. If the government — that is, taxpayers — were just willing to spot G.M. some cash to get it over this little rough patch, everything would be just fine.
Mr. Cervone’s comment reflects what’s wrong with the mind-set in Detroit.
G.M is using money so quickly that a $10 billion infusion made today would disappear by February. That is why taxpayers shouldn’t fork over a cent, at least until shareholders are wiped out, management is tossed out and the industry is completely reorganized.
But there is a fix. Call it a government-sponsored bankruptcy, a G.S.B., if you will. It might sound a bit like an oxymoron, but it is an idea that has been quietly making the rounds in Washington. It makes a lot of sense.
Here’s how it could work:
First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing — indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger.
Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.
So, first, the government would force G.M into a prepackaged bankruptcy now — even before policy makers may think it needs to be. As an inducement, the government would allow the merger with Chrysler to go forward. (There’s a lot of resistance to saving Chrysler too, but we need to look at the industry as a whole. And don’t worry: Cerberus, the private equity firm that owns Chrysler, would have its equity wiped out too.)
The merger should reduce costs by as much as $7 billion. But that’s not the tough stuff. The harder decisions are these: Both companies would have to jettison brands — lots of them. In the case of G.M., frankly, the only ones worth saving are Cadillac, Chevy and Buick. (Buick? Yes. Despite its lackluster sales and fuddy-duddy image in the United States, it’s a huge seller in China.)
That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.’s brands from eight to three would bring down the company’s cost base by $5 billion annually. If you’re able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler’s minivan business could be combined into the Chevy brand as well.
In all, the 35 plants of G.M. and Chrysler would probably be cut by half.
Then the auto workers, whose benefits are off the charts.
G.M. currently employs about 8,000 people who actually don’t come to work. Those who do go to work are paid about $10 to $20 an hour more than people who do the same job building cars in the United States for foreign makers like Toyota. At G.M., as of 2007, the average worker was paid about $70 an hour, including health care and pension costs.
Those costs are already coming down slightly because of a renegotiated deal with U.A.W. last year, but not nearly enough.
Part of the problem is summed up by comments like this one in The Detroit Free Press, made by Kandy O’Neill, 39, an assembler at G.M.’s plant in Lake Orion, Mich., where she builds the Chevy Malibu and Pontiac G6. “I think we’ve given enough,” she said about the cuts to her salary and pension plan.
“Everybody wants to come down hard on the workers,” she said. “Nobody knows what we do inside there but the people who work there. It’s hard. It is not an easy job.”
When you read a line like that you might sympathize with her, but then you realize that nothing can be accomplished without bankruptcy. Ms. O’Neill: your company is asking the taxpayers — many of whom don’t have health care coverage — to pay your salary and health insurance.
And then we need these companies to agree to serious, strict enforcement of gas mileage standards. They should be producing the cleanest cars on the street. We may lose hundreds of thousands of jobs in this industry in the near term, but with the right kind of innovation, we should have millions of new jobs in the next 10 years.
Finally, we need to kick out management. That Rick Wagoner, chief executive of G.M., can say with a straight face that he still deserves to run this company is laughable. It would be impossible for him to put in place the serious changes that need to be made because he carries too much baggage. He’d have to undo years of his own neglect.
After all that is agreed, and only then, the government should come in with what’s known as debtor-in-possession financing to help the company through the bankruptcy process. Ideally, the government would be a “seed investor” and others would join it.
The goal should not be to keep these companies from filing Chapter 11, but from filing for Chapter 7 — which would mean liquidation.
With the debt market virtually closed, this is the time the government can come in and try to help. But to jump in front of the train now, without the requisite changes made to the industry first — which we all know can’t be done without Chapter 11 — would be foolish.
The automobile industry has argued that bankruptcy will be a disaster for the industry; that people won’t buy vehicles while they’re in bankruptcy for fear that the warranty won’t mean anything. There’s a fix for that too. The government should establish a warranty insurance fund that would insure the warranties of all G.M. and Chrysler vehicles bought while the combined company is still operating under bankruptcy protection. The cost to taxpayers should be next to nothing, assuming the company survives and can takeover the warranty obligations.
The government also should consider using some of the money for the financial industry rescue not to save the companies, but to retrain employees in the Detroit area and help promote development of new industry. A lot of people complain about the role of government in business and free markets. But it is hard to complain about efforts to make the nation’s workforce more employable.
Barack Obama, on “60 Minutes” Sunday night, said that government assistance must be “conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan.” He said, “So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere.”
Take note, Mr. Cervone: that bridge is called Chapter 11.
The latest news on mergers and acquisitions can be found at nytimes.com/dealbook
Thursday, November 13, 2008
Pixels Are Like Cupcakes. Let Me Explain. By RUSS JUSKALIAN
The New York Times
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November 13, 2008
Basics
Pixels Are Like Cupcakes. Let Me Explain. By RUSS JUSKALIAN
IT happens to all of us: the moment when one finds out that more megapixels and better photographs aren’t always the same thing. To be disabused of the Megapixel Myth — this decade’s analog of the Megahertz Myth — can lead to an existential buyer’s crisis in miniature.
Disbelief, at first, gives way to a sort of embarrassing self-questioning: You mean, 15 megapixels isn’t three times better than 5 megapixels? This year’s model isn’t better than last year’s? I spent all that money upgrading — for nothing?
The panicky consumer is then faced with the choice of dumping digital electronics and becoming a Luddite, or learning about camera technology and taking control of purchasing decisions.
Upon pursuing this latter path, one soon realizes that all is not lost. Newer generations of digital cameras and camcorders, which almost always have more megapixels or higher resolutions, still tend to produce great output.
But there is more to a digital camera’s sensor than resolution. Understanding some of the basics may just convince you that, at least this year, buying last year’s model is a smart move.
Focusing on the Right Numbers
In a sea of specifications, one of the most overlooked is the size, not the number, of pixels on a camera’s sensor. Bigger sensors usually mean bigger pixels, which provides some advantages when it comes to making an image.
The mechanics of this can be understood by thinking of a digital camera sensor as a flat sheet of material pocked with millions (hence “mega”) of cylindrical, cuplike pixels. In other words, picture the digital sensor as a tiny cupcake tin.
Photons (light particles) pass through a camera’s lens and are captured by the cups in the tray. Each cup is either red, green or blue (the three colors that are the building blocks for all other colors). The more photons a cup catches, the brighter that cup’s color. Totally empty cups record black; totally full cups record white.
Larger pixels (cups, remember), with larger surface areas, capture more photons per second, which in electronics-speak means a stronger signal — and in camera-speak means less noise and cleaner colors. Bigger pixels can also capture more photons per exposure without filling up, so larger pixels hold on to their color longer and don’t go white as quickly as smaller pixels.
Since sensor sizes in compact cameras haven’t gotten much bigger, but their megapixel count has, increasing the number of pixels can be accomplished only by using smaller pixels. For this reason, it’s often not worth paying extra for the newest megapixel champion, says Phil Askey, editor of dpreview.com.
“Once you get beyond seven or eight megapixels in a compact point-and-shoot camera, the small lenses are struggling to keep up,” Mr. Askey said. “And you’re cramming so many pixels in such a small sensor that noise is becoming a real issue. We started worrying about this back in 2006, but it’s only gotten worse.”
The same thing is true for digital single-lens reflex cameras. In fact, recent tests conducted at dpreview.com concluded that the new 15-megapixel Canon EOS 50D ($1,400) “shows visibly more chroma and luminance noise,” and slightly less dynamic range, than the older 10-megapixel Canon EOS 40D ($920).
As a way to visualize just how densely packed sensors have become, Mr. Askey’s Web site provides pixel density and sensor-size data on more than 1,200 digital cameras. And while Mr. Askey cautions that buyers shouldn’t make decisions based on a single number, those data can help put a purchase in perspective alongside more comprehensive reviews of image quality.
So if you’re in the market for a “pro-sumer” D.S.L.R. (a consumer camera with the quality and features of a professional model) that minimizes noise issues, take a look at the Canon Rebel XSi ($600), Canon 40D ($920), Nikon D80 ($640), and Nikon D90 ($1,000).
Tapping Your Inner Pro
Another advantage of a larger sensor is the ability to produce images where only a relatively small portion of the subject is in focus. Completely understanding how this works may require a degree in physics, but in general, cameras with small sensors tend to produce images where almost everything appears to be in focus.
This is the main reason that, in normal shooting situations, images produced by small point-and-shoot cameras and D.S.L.R.’s look so distinct. In digital video, the result of using small sensors is sometimes referred to as the “video look.”
The bad news is that you’ll probably need to use a D.S.L.R. to produce a really shallow depth of field. The good news is you can achieve that professional look with the cheapest of entry-level D.S.L.R.’s, which are also relatively small.
(The only compact point-and-shoot options are the Sigma DP-1 for $700, which The New York Times consumer technology columnist David Pogue praised for its image quality but panned on all other counts; the new Panasonic DMC-G1, which Mr. Pogue had similarly mixed feelings about; and the newly announced, but untested, Sigma DP-2.)
If you’re looking for a smallish camera that can achieve shallow-depth-of-field images, good deals include the Canon Rebel XS (around $510 with lens), Nikon D40/D40X (around $450 with lens), and Olympus E-420 (around $460 with lens).
Skill Still Matters
Though some experts say they believe that improvement has slowed in digital imaging, it’s always wise to remember that with technology, today’s rules are tomorrow’s anachronisms.
But no matter when the next advance in digital imaging comes, the old saying that the photographer is the most important part of a good photo will still hold true.
Just consider Alex Majoli, an award-winning Magnum photographer, who is known for shooting images of war and other dramatic scenes for publications like National Geographic and Newsweek — with compact point-and-shoot digital cameras.
Or consider the more critical words of Ansel Adams.
“The sheer ease with which we can produce a superficial image,” Mr. Adams once wrote, “often leads to creative disaster.”
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November 13, 2008
Basics
Pixels Are Like Cupcakes. Let Me Explain. By RUSS JUSKALIAN
IT happens to all of us: the moment when one finds out that more megapixels and better photographs aren’t always the same thing. To be disabused of the Megapixel Myth — this decade’s analog of the Megahertz Myth — can lead to an existential buyer’s crisis in miniature.
Disbelief, at first, gives way to a sort of embarrassing self-questioning: You mean, 15 megapixels isn’t three times better than 5 megapixels? This year’s model isn’t better than last year’s? I spent all that money upgrading — for nothing?
The panicky consumer is then faced with the choice of dumping digital electronics and becoming a Luddite, or learning about camera technology and taking control of purchasing decisions.
Upon pursuing this latter path, one soon realizes that all is not lost. Newer generations of digital cameras and camcorders, which almost always have more megapixels or higher resolutions, still tend to produce great output.
But there is more to a digital camera’s sensor than resolution. Understanding some of the basics may just convince you that, at least this year, buying last year’s model is a smart move.
Focusing on the Right Numbers
In a sea of specifications, one of the most overlooked is the size, not the number, of pixels on a camera’s sensor. Bigger sensors usually mean bigger pixels, which provides some advantages when it comes to making an image.
The mechanics of this can be understood by thinking of a digital camera sensor as a flat sheet of material pocked with millions (hence “mega”) of cylindrical, cuplike pixels. In other words, picture the digital sensor as a tiny cupcake tin.
Photons (light particles) pass through a camera’s lens and are captured by the cups in the tray. Each cup is either red, green or blue (the three colors that are the building blocks for all other colors). The more photons a cup catches, the brighter that cup’s color. Totally empty cups record black; totally full cups record white.
Larger pixels (cups, remember), with larger surface areas, capture more photons per second, which in electronics-speak means a stronger signal — and in camera-speak means less noise and cleaner colors. Bigger pixels can also capture more photons per exposure without filling up, so larger pixels hold on to their color longer and don’t go white as quickly as smaller pixels.
Since sensor sizes in compact cameras haven’t gotten much bigger, but their megapixel count has, increasing the number of pixels can be accomplished only by using smaller pixels. For this reason, it’s often not worth paying extra for the newest megapixel champion, says Phil Askey, editor of dpreview.com.
“Once you get beyond seven or eight megapixels in a compact point-and-shoot camera, the small lenses are struggling to keep up,” Mr. Askey said. “And you’re cramming so many pixels in such a small sensor that noise is becoming a real issue. We started worrying about this back in 2006, but it’s only gotten worse.”
The same thing is true for digital single-lens reflex cameras. In fact, recent tests conducted at dpreview.com concluded that the new 15-megapixel Canon EOS 50D ($1,400) “shows visibly more chroma and luminance noise,” and slightly less dynamic range, than the older 10-megapixel Canon EOS 40D ($920).
As a way to visualize just how densely packed sensors have become, Mr. Askey’s Web site provides pixel density and sensor-size data on more than 1,200 digital cameras. And while Mr. Askey cautions that buyers shouldn’t make decisions based on a single number, those data can help put a purchase in perspective alongside more comprehensive reviews of image quality.
So if you’re in the market for a “pro-sumer” D.S.L.R. (a consumer camera with the quality and features of a professional model) that minimizes noise issues, take a look at the Canon Rebel XSi ($600), Canon 40D ($920), Nikon D80 ($640), and Nikon D90 ($1,000).
Tapping Your Inner Pro
Another advantage of a larger sensor is the ability to produce images where only a relatively small portion of the subject is in focus. Completely understanding how this works may require a degree in physics, but in general, cameras with small sensors tend to produce images where almost everything appears to be in focus.
This is the main reason that, in normal shooting situations, images produced by small point-and-shoot cameras and D.S.L.R.’s look so distinct. In digital video, the result of using small sensors is sometimes referred to as the “video look.”
The bad news is that you’ll probably need to use a D.S.L.R. to produce a really shallow depth of field. The good news is you can achieve that professional look with the cheapest of entry-level D.S.L.R.’s, which are also relatively small.
(The only compact point-and-shoot options are the Sigma DP-1 for $700, which The New York Times consumer technology columnist David Pogue praised for its image quality but panned on all other counts; the new Panasonic DMC-G1, which Mr. Pogue had similarly mixed feelings about; and the newly announced, but untested, Sigma DP-2.)
If you’re looking for a smallish camera that can achieve shallow-depth-of-field images, good deals include the Canon Rebel XS (around $510 with lens), Nikon D40/D40X (around $450 with lens), and Olympus E-420 (around $460 with lens).
Skill Still Matters
Though some experts say they believe that improvement has slowed in digital imaging, it’s always wise to remember that with technology, today’s rules are tomorrow’s anachronisms.
But no matter when the next advance in digital imaging comes, the old saying that the photographer is the most important part of a good photo will still hold true.
Just consider Alex Majoli, an award-winning Magnum photographer, who is known for shooting images of war and other dramatic scenes for publications like National Geographic and Newsweek — with compact point-and-shoot digital cameras.
Or consider the more critical words of Ansel Adams.
“The sheer ease with which we can produce a superficial image,” Mr. Adams once wrote, “often leads to creative disaster.”
Sunday, November 09, 2008
Fantasies Old and New, Names Familiar and Fresh By THE NEW YORK TIMES
The New York Times
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November 9, 2008
Fantasies Old and New, Names Familiar and Fresh By THE NEW YORK TIMES
‘FANTASIE_FANTASME’
David Greilsammer, piano. Naïve V 5081; CD.
THE idea of choosing piano works for a solo recording that explores the concept of fantasy may not seem all that original. But on this fascinating album the Israeli pianist David Greilsammer explores the concept in a program of striking diversity, exposing musical resonances among disparate works by composers from Bach and Brahms to Cage to Ligeti. Of course the concept would mean little were the performances not so brilliant and probing. Mr. Greilsammer, born in Jerusalem in 1977, is a formidable pianist.
He begins with one of the boldest fantasies ever written, the first part of Bach’s “Chromatic Fantasy and Fugue,” playing just that rhapsodic and grimly agitated fantasy section. He then segues directly into the first of two recent “Fantastrophes” by Jonathan Keren, frenetically jazzy music that shifts between states of sublime mysticism and catastrophic wildness.
The surprising segues continue, as Mr. Greilsammer moves to Brahms’s mellow Intermezzo in A minor from the Op. 116 Fantasies, then to the first three of Schoenberg’s elusive Six Little Piano Pieces and Ligeti’s fantastical “Musica Ricercata” (the sixth movement), in which Ligeti’s jittery counterpoint harkens to Bach.
“The Presentiment,” a hallucinogenic movement from Janacek’s Sonata “1.X.1905,” which follows, proves an ideal setup for Cage’s playfully exotic Sonata No. 5 for Prepared Piano. Mozart’s stormy, episodic Fantasy in C minor (K. 475), which Mr. Greilsammer plays with arresting freedom yet crisp articulation, marks the halfway point in the program.
From there he circles back almost in a mirror reflection, through Cage, Janacek, Ligeti and so on, playing some of the missing movements and parts of works we have already heard incomplete, concluding with the fugue from the Bach piece. Somehow, in this context, and thanks to Mr. Greilsammer’s dynamic performance, the imposing counterpoint of Bach’s great fugue sounds fantastical. ANTHONY TOMMASINI
‘FIESTA’
Simón Bolívar Youth Orchestra of Venezuela, conducted by Gustavo Dudamel. Deutsche Grammophon B0011340-02; CD.
FIRST impressions count for a lot, so it was no surprise when the hot young Venezuelan conductor Gustavo Dudamel began his tenure on the venerable German label Deutsche Grammophon with recordings of symphonies by Beethoven and Mahler. Those discs, recorded with his Simón Bolívar Youth Orchestra, featured performances more confident and assured than revelatory. Still, they established Mr. Dudamel, who will conduct the Israel Philharmonic at the New Jersey Performing Arts Center on next Saturday and at Carnegie Hall on Nov. 16 and 17, as an artist capable of handling the core classical literature honorably.
Deutsche Grammophon deserves credit for fostering Mr. Dudamel’s growth rather than pigeonholing him. But after a video of him and his players tearing through Bernstein’s “Mambo” (from “West Side Story”) at the 2007 BBC Proms in London swept around the Internet like wildfire last year, the label was also wise to recognize the demand for a sampling of his more incendiary wares.
“Fiesta,” recorded live in Caracas, Venezuela, presents Mr. Dudamel and his players in an appealing mix of Latin American works, including a few staples of the international repertory. In well-trodden works like Revueltas’s “Sensemayá” and Ginastera’s “Estancia” dances, the Simón Bolívar players match all comers in finesse and power, and outdo all in sheer exuberance. Some of the less explored byways here are just as compelling, including Antonio Estevéz’s impressionistic “Mediodía en el Llano” and Arturo Márquez’s seductive “Danzón No. 2.”
The sound quality, vivid and detailed, befits the exotic, colorful contents. Apart from some murky passages in Aldemaro Romero’s buoyant “Fuga con Pajarillo,” the youth orchestra plays with all the style and precision of a professional institution. And “Mambo,” the closing track, remains a barnburner; just close your eyes and imagine the spinning trumpets. STEVE SMITH
‘OPPENS PLAYS CARTER: ELLIOTT CARTER AT 100, THE COMPLETE PIANO MUSIC’
Ursula Oppens, pianist. Cedille CDR 90000 108; CD.
EVEN as Elliott Carter cruises toward his 100th birthday on Dec. 11, it seems premature to call a collection of his works “complete” without at least a parenthetical “so far.” Ursula Oppens, at least, makes her claim of completeness a secondary subtitle, and rightly so. Mr. Carter is writing more prolifically than ever, and given that four of the eight works in this set were composed after 2000, it seems likely that he will contribute more.
That said, Mr. Carter’s piano portfolio is oddly proportioned, with two titanic works — the Piano Sonata (1946) and “Night Fantasies” (1980) — as the earliest entries, and a handful of high-powered miniatures embracing his latest thoughts. The sonata is very nearly the work of a different composer. Completed about five years before Mr. Carter discovered what would become his signature style while composing his First String Quartet, this energetic early score embraces motoric regular rhythms, the mildest of dissonances and even a few Neo-Classical touches.
Ms. Oppens has long been devoted to Mr. Carter’s work, and it’s hard to tell whether she has grown with it or it has grown with her. Her view of “Night Fantasies,” for example, has changed considerably since she presented the work’s premiere. Early on she gave the dreamy side of this fevered 20-minute score greater prominence. Here its anxious energy, borderline nightmarishness and sense of unfolding drama take a greater share of the spotlight.
In a way, the energy and chiseled pointillism of the later works — particularly “90+” (1994) and the sizzling “Caténaires” (2006) — come through on this closely focused recording with a sharpness and clarity lost in a concert hall. If you want to get to know this music (and you should), listen to this disc with headphones. ALLAN KOZINN
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November 9, 2008
Fantasies Old and New, Names Familiar and Fresh By THE NEW YORK TIMES
‘FANTASIE_FANTASME’
David Greilsammer, piano. Naïve V 5081; CD.
THE idea of choosing piano works for a solo recording that explores the concept of fantasy may not seem all that original. But on this fascinating album the Israeli pianist David Greilsammer explores the concept in a program of striking diversity, exposing musical resonances among disparate works by composers from Bach and Brahms to Cage to Ligeti. Of course the concept would mean little were the performances not so brilliant and probing. Mr. Greilsammer, born in Jerusalem in 1977, is a formidable pianist.
He begins with one of the boldest fantasies ever written, the first part of Bach’s “Chromatic Fantasy and Fugue,” playing just that rhapsodic and grimly agitated fantasy section. He then segues directly into the first of two recent “Fantastrophes” by Jonathan Keren, frenetically jazzy music that shifts between states of sublime mysticism and catastrophic wildness.
The surprising segues continue, as Mr. Greilsammer moves to Brahms’s mellow Intermezzo in A minor from the Op. 116 Fantasies, then to the first three of Schoenberg’s elusive Six Little Piano Pieces and Ligeti’s fantastical “Musica Ricercata” (the sixth movement), in which Ligeti’s jittery counterpoint harkens to Bach.
“The Presentiment,” a hallucinogenic movement from Janacek’s Sonata “1.X.1905,” which follows, proves an ideal setup for Cage’s playfully exotic Sonata No. 5 for Prepared Piano. Mozart’s stormy, episodic Fantasy in C minor (K. 475), which Mr. Greilsammer plays with arresting freedom yet crisp articulation, marks the halfway point in the program.
From there he circles back almost in a mirror reflection, through Cage, Janacek, Ligeti and so on, playing some of the missing movements and parts of works we have already heard incomplete, concluding with the fugue from the Bach piece. Somehow, in this context, and thanks to Mr. Greilsammer’s dynamic performance, the imposing counterpoint of Bach’s great fugue sounds fantastical. ANTHONY TOMMASINI
‘FIESTA’
Simón Bolívar Youth Orchestra of Venezuela, conducted by Gustavo Dudamel. Deutsche Grammophon B0011340-02; CD.
FIRST impressions count for a lot, so it was no surprise when the hot young Venezuelan conductor Gustavo Dudamel began his tenure on the venerable German label Deutsche Grammophon with recordings of symphonies by Beethoven and Mahler. Those discs, recorded with his Simón Bolívar Youth Orchestra, featured performances more confident and assured than revelatory. Still, they established Mr. Dudamel, who will conduct the Israel Philharmonic at the New Jersey Performing Arts Center on next Saturday and at Carnegie Hall on Nov. 16 and 17, as an artist capable of handling the core classical literature honorably.
Deutsche Grammophon deserves credit for fostering Mr. Dudamel’s growth rather than pigeonholing him. But after a video of him and his players tearing through Bernstein’s “Mambo” (from “West Side Story”) at the 2007 BBC Proms in London swept around the Internet like wildfire last year, the label was also wise to recognize the demand for a sampling of his more incendiary wares.
“Fiesta,” recorded live in Caracas, Venezuela, presents Mr. Dudamel and his players in an appealing mix of Latin American works, including a few staples of the international repertory. In well-trodden works like Revueltas’s “Sensemayá” and Ginastera’s “Estancia” dances, the Simón Bolívar players match all comers in finesse and power, and outdo all in sheer exuberance. Some of the less explored byways here are just as compelling, including Antonio Estevéz’s impressionistic “Mediodía en el Llano” and Arturo Márquez’s seductive “Danzón No. 2.”
The sound quality, vivid and detailed, befits the exotic, colorful contents. Apart from some murky passages in Aldemaro Romero’s buoyant “Fuga con Pajarillo,” the youth orchestra plays with all the style and precision of a professional institution. And “Mambo,” the closing track, remains a barnburner; just close your eyes and imagine the spinning trumpets. STEVE SMITH
‘OPPENS PLAYS CARTER: ELLIOTT CARTER AT 100, THE COMPLETE PIANO MUSIC’
Ursula Oppens, pianist. Cedille CDR 90000 108; CD.
EVEN as Elliott Carter cruises toward his 100th birthday on Dec. 11, it seems premature to call a collection of his works “complete” without at least a parenthetical “so far.” Ursula Oppens, at least, makes her claim of completeness a secondary subtitle, and rightly so. Mr. Carter is writing more prolifically than ever, and given that four of the eight works in this set were composed after 2000, it seems likely that he will contribute more.
That said, Mr. Carter’s piano portfolio is oddly proportioned, with two titanic works — the Piano Sonata (1946) and “Night Fantasies” (1980) — as the earliest entries, and a handful of high-powered miniatures embracing his latest thoughts. The sonata is very nearly the work of a different composer. Completed about five years before Mr. Carter discovered what would become his signature style while composing his First String Quartet, this energetic early score embraces motoric regular rhythms, the mildest of dissonances and even a few Neo-Classical touches.
Ms. Oppens has long been devoted to Mr. Carter’s work, and it’s hard to tell whether she has grown with it or it has grown with her. Her view of “Night Fantasies,” for example, has changed considerably since she presented the work’s premiere. Early on she gave the dreamy side of this fevered 20-minute score greater prominence. Here its anxious energy, borderline nightmarishness and sense of unfolding drama take a greater share of the spotlight.
In a way, the energy and chiseled pointillism of the later works — particularly “90+” (1994) and the sizzling “Caténaires” (2006) — come through on this closely focused recording with a sharpness and clarity lost in a concert hall. If you want to get to know this music (and you should), listen to this disc with headphones. ALLAN KOZINN
Just What This Downturn Demands: A Consumption Tax By ROBERT FRANK
The New York Times
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November 9, 2008
Just What This Downturn Demands: A Consumption Tax By ROBERT FRANK
THE country is now in the midst of the deepest economic crisis since the Great Depression. But as a new administration prepares to enter the White House, the crisis could end up being a potent ally for change. Without it, political resistance to the steps needed to address our most acute and longstanding economic problems would be almost insurmountable.
Despite broad agreement that the nation needs to increase spending in many domains — including infrastructure, health care, scientific research and clean energy development — no one has forged a legislative coalition capable of raising the necessary tax revenue. But with the country sliding into what promises to be a sharp and protracted economic downturn, it is imperative to increase spending over the short run, regardless of how we pay for it.
Even stalwart conservatives concede the point. For example, Martin Feldstein, the Harvard economist who was an adviser to the campaign of Senator John McCain, recently wrote in The Washington Post, “The only way to prevent a deepening recession will be a temporary program of increased government spending.” Mr. Feldstein suggested that government might need to offset a shortfall of some $300 billion in household spending.
In the long run, though, it will be necessary to raise enough tax revenue to balance the budget. One of the most effective ways to do that is by changing what we tax. Most federal revenue now comes from the income tax. Because a family’s annual income equals the amount it spends each year plus the amount it saves, we are effectively taxing savings. And savings rates have fallen precipitously, often dipping into negative territory as families have used home equity loans and credit card debt to spend more than they earned. Because the country needs to save more, taxing savings makes no sense.
The first reform that Barack Obama should consider is replacing the progressive income tax with a progressive tax on consumption. A family would report its income to the Internal Revenue Service as it does now, and also its savings, as it now reports contributions to retirement accounts. Annual consumption would then be calculated as the family’s income minus its savings. Its taxable consumption would be that amount minus a large standard deduction — say, $30,000 for a family of four.
A family that earned $60,000 and saved $10,000, for example, would have taxable consumption of $20,000. Initial tax rates on consumption would be low, and would then rise steadily with consumption, topping out at higher levels than the current top rates on income.
Such a tax could raise more revenue than the current system, yet would be far less burdensome for families at nearly all income levels. Because of the large standard deduction, middle-income families would pay less than they did before, and high-income consumers could limit their tax increases by saving more.
How painful would that be? Some wealthy families now spend millions of dollars on coming-of-age parties for their children. A steeply progressive consumption tax would encourage them to spend less, which would not be much of a sacrifice, since the main effect would be to lower the bar that defines an acceptable coming-of-age party for people in their tax bracket.
Other changes in what we tax could further reduce the revenue shortfall while producing positive side effects. Energy and climate specialists, for example, have long advocated taxes on carbon. The burden of these levies would be lessened by the resulting reductions in pollution and congestion.
Imposing new taxes is never easy. But recent research suggests innovative ways of making it more palatable. Behavioral economists have shown that the pain caused by a loss is far greater than the pleasure caused by a gain of the same magnitude. This asymmetry, called loss aversion, helps explain why it is so hard to pay higher taxes. Doing so means reducing consumption now — a loss that is immediately painful.
To overcome this hurdle, Congress could vote to increase future taxes — a strategy that happily coincides with current fiscal imperatives. Tax increases are never a good idea when the economy is in the doldrums, but the current downturn will not be permanent. Higher taxes could be phased in gradually, after income growth resumes. As long as each year’s tax increase is smaller than the corresponding growth in income, painful reductions in consumption will not be necessary.
Evidence supporting this strategy comes from “Save More Tomorrow,” a payroll savings program designed by the economists Richard H. Thaler and Shlomo Benartzi. Under this program, workers can allocate a portion of future salary increases to retirement savings accounts. Hundreds of corporations report that their employees began saving at sharply higher rates after the introduction of this program.
It would be quixotic to imagine that losses from the current economic meltdown won’t be painful. But the crisis also opens new doors to policymakers — providing them with options that would have seemed unthinkable just a few months ago.
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November 9, 2008
Just What This Downturn Demands: A Consumption Tax By ROBERT FRANK
THE country is now in the midst of the deepest economic crisis since the Great Depression. But as a new administration prepares to enter the White House, the crisis could end up being a potent ally for change. Without it, political resistance to the steps needed to address our most acute and longstanding economic problems would be almost insurmountable.
Despite broad agreement that the nation needs to increase spending in many domains — including infrastructure, health care, scientific research and clean energy development — no one has forged a legislative coalition capable of raising the necessary tax revenue. But with the country sliding into what promises to be a sharp and protracted economic downturn, it is imperative to increase spending over the short run, regardless of how we pay for it.
Even stalwart conservatives concede the point. For example, Martin Feldstein, the Harvard economist who was an adviser to the campaign of Senator John McCain, recently wrote in The Washington Post, “The only way to prevent a deepening recession will be a temporary program of increased government spending.” Mr. Feldstein suggested that government might need to offset a shortfall of some $300 billion in household spending.
In the long run, though, it will be necessary to raise enough tax revenue to balance the budget. One of the most effective ways to do that is by changing what we tax. Most federal revenue now comes from the income tax. Because a family’s annual income equals the amount it spends each year plus the amount it saves, we are effectively taxing savings. And savings rates have fallen precipitously, often dipping into negative territory as families have used home equity loans and credit card debt to spend more than they earned. Because the country needs to save more, taxing savings makes no sense.
The first reform that Barack Obama should consider is replacing the progressive income tax with a progressive tax on consumption. A family would report its income to the Internal Revenue Service as it does now, and also its savings, as it now reports contributions to retirement accounts. Annual consumption would then be calculated as the family’s income minus its savings. Its taxable consumption would be that amount minus a large standard deduction — say, $30,000 for a family of four.
A family that earned $60,000 and saved $10,000, for example, would have taxable consumption of $20,000. Initial tax rates on consumption would be low, and would then rise steadily with consumption, topping out at higher levels than the current top rates on income.
Such a tax could raise more revenue than the current system, yet would be far less burdensome for families at nearly all income levels. Because of the large standard deduction, middle-income families would pay less than they did before, and high-income consumers could limit their tax increases by saving more.
How painful would that be? Some wealthy families now spend millions of dollars on coming-of-age parties for their children. A steeply progressive consumption tax would encourage them to spend less, which would not be much of a sacrifice, since the main effect would be to lower the bar that defines an acceptable coming-of-age party for people in their tax bracket.
Other changes in what we tax could further reduce the revenue shortfall while producing positive side effects. Energy and climate specialists, for example, have long advocated taxes on carbon. The burden of these levies would be lessened by the resulting reductions in pollution and congestion.
Imposing new taxes is never easy. But recent research suggests innovative ways of making it more palatable. Behavioral economists have shown that the pain caused by a loss is far greater than the pleasure caused by a gain of the same magnitude. This asymmetry, called loss aversion, helps explain why it is so hard to pay higher taxes. Doing so means reducing consumption now — a loss that is immediately painful.
To overcome this hurdle, Congress could vote to increase future taxes — a strategy that happily coincides with current fiscal imperatives. Tax increases are never a good idea when the economy is in the doldrums, but the current downturn will not be permanent. Higher taxes could be phased in gradually, after income growth resumes. As long as each year’s tax increase is smaller than the corresponding growth in income, painful reductions in consumption will not be necessary.
Evidence supporting this strategy comes from “Save More Tomorrow,” a payroll savings program designed by the economists Richard H. Thaler and Shlomo Benartzi. Under this program, workers can allocate a portion of future salary increases to retirement savings accounts. Hundreds of corporations report that their employees began saving at sharply higher rates after the introduction of this program.
It would be quixotic to imagine that losses from the current economic meltdown won’t be painful. But the crisis also opens new doors to policymakers — providing them with options that would have seemed unthinkable just a few months ago.
Sure, It All Sounds Grand, but Don’t Forget the Gravitas By BEN STEIN
The New York Times
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November 9, 2008
Sure, It All Sounds Grand, but Don’t Forget the Gravitas By BEN STEIN
WE will soon have a new leader of the United States. He will have considerable power, yet obviously not nearly enough to deliver on everything that has been promised. With these limitations in mind, herewith are a few suggestions regarding some of the pitfalls ahead in handling economic policy:
HAVE REALISTIC EXPECTATIONS Plan what must be done to effect the minimum amount of change you’ll be happy with. All politicians basically promise the moon and the stars to their supporters. For any new president, it’s crucial to try to decide what can be reasonably changed — like naming a new Treasury secretary and having higher taxes for the wealthy. Then the president must set to work on those while his prestige and mandate are still fresh and strong.
CHAMPION ONLY THE SERIOUS IDEAS Don’t sign on to any economic policy proposals without some statistical or theoretical heft to them.
The Republicans lost this election partly because of the heritages of pie-in-the-sky supply-side economics and excess deregulation. I doubt very much that a Democratic president is going to become a supply-sider, but in the campaign there were some other ideas that sound good but have no rigor to them.
Alternative energy sounds nice. But here in California, we have poured plenty of money — in the form of tax credits — into solar power and wind power. The contribution of these sources to our statewide energy product has been very modest. This doesn’t mean that the effort should not be made. But there is a limit to taxpayer resources, and it may be that tax subsidies are not the way to go here.
Likewise, job retraining for workers in industries affected by foreign competition makes anecdotal sense. But the statistical results about this are highly mixed. Maybe some form of relocation assistance would be better.
I am endlessly amazed that I have to pay about $60 an hour to hang a mirror in Rancho Mirage, Calif., and that there is a shortage of reliable handymen there. This has implications for hard-working machinists being laid off in Detroit. Maybe there is some merit to a fund that would take workers where they want to go and are needed.
Another campaign idea was a reconsideration of free trade. But trying to roll back free trade is like putting toothpaste back in the tube. It rarely works, and it makes a tremendous mess while you are trying. The retaliation involved in erecting trade barriers is almost never worthwhile.
Basic hint: If an idea lacks any convincing theory or data to support it, maybe it’s best to avoid it.
BAIL OUT DETROIT Yes, an America without a large automobile and truck industry is not America. This country cannot possibly be a first-class power without maintaining a large motor industry.
The national security considerations make saving General Motors, Ford and Chrysler a life-or-death matter. And the good men and women who make our fine cars have at least as much claim to government help as farmers and bankers do. We’ll want a G.M. or a Chrysler when it’s time to make tanks and Humvees and need their workers’ skills.
HAVE GOOD PEOPLE AROUND And that especially means men and women without axes to grind. The president-elect has some of the best brains on earth around him, especially Warren E. Buffett and Paul A. Volcker. It’s important to make full use of them.
STAY HUMBLE No matter how many electoral votes a president receives, he is mortal. He will make mistakes. Events will pile up that are too much for anyone to handle, so he should be ready to pray over them. A president will be beaten down more than he can expect, and if he is ready with humility, he will be far ahead of the game.
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November 9, 2008
Sure, It All Sounds Grand, but Don’t Forget the Gravitas By BEN STEIN
WE will soon have a new leader of the United States. He will have considerable power, yet obviously not nearly enough to deliver on everything that has been promised. With these limitations in mind, herewith are a few suggestions regarding some of the pitfalls ahead in handling economic policy:
HAVE REALISTIC EXPECTATIONS Plan what must be done to effect the minimum amount of change you’ll be happy with. All politicians basically promise the moon and the stars to their supporters. For any new president, it’s crucial to try to decide what can be reasonably changed — like naming a new Treasury secretary and having higher taxes for the wealthy. Then the president must set to work on those while his prestige and mandate are still fresh and strong.
CHAMPION ONLY THE SERIOUS IDEAS Don’t sign on to any economic policy proposals without some statistical or theoretical heft to them.
The Republicans lost this election partly because of the heritages of pie-in-the-sky supply-side economics and excess deregulation. I doubt very much that a Democratic president is going to become a supply-sider, but in the campaign there were some other ideas that sound good but have no rigor to them.
Alternative energy sounds nice. But here in California, we have poured plenty of money — in the form of tax credits — into solar power and wind power. The contribution of these sources to our statewide energy product has been very modest. This doesn’t mean that the effort should not be made. But there is a limit to taxpayer resources, and it may be that tax subsidies are not the way to go here.
Likewise, job retraining for workers in industries affected by foreign competition makes anecdotal sense. But the statistical results about this are highly mixed. Maybe some form of relocation assistance would be better.
I am endlessly amazed that I have to pay about $60 an hour to hang a mirror in Rancho Mirage, Calif., and that there is a shortage of reliable handymen there. This has implications for hard-working machinists being laid off in Detroit. Maybe there is some merit to a fund that would take workers where they want to go and are needed.
Another campaign idea was a reconsideration of free trade. But trying to roll back free trade is like putting toothpaste back in the tube. It rarely works, and it makes a tremendous mess while you are trying. The retaliation involved in erecting trade barriers is almost never worthwhile.
Basic hint: If an idea lacks any convincing theory or data to support it, maybe it’s best to avoid it.
BAIL OUT DETROIT Yes, an America without a large automobile and truck industry is not America. This country cannot possibly be a first-class power without maintaining a large motor industry.
The national security considerations make saving General Motors, Ford and Chrysler a life-or-death matter. And the good men and women who make our fine cars have at least as much claim to government help as farmers and bankers do. We’ll want a G.M. or a Chrysler when it’s time to make tanks and Humvees and need their workers’ skills.
HAVE GOOD PEOPLE AROUND And that especially means men and women without axes to grind. The president-elect has some of the best brains on earth around him, especially Warren E. Buffett and Paul A. Volcker. It’s important to make full use of them.
STAY HUMBLE No matter how many electoral votes a president receives, he is mortal. He will make mistakes. Events will pile up that are too much for anyone to handle, so he should be ready to pray over them. A president will be beaten down more than he can expect, and if he is ready with humility, he will be far ahead of the game.
Remember That Capitalism Is More Than a Spectator Sport By ALAN S. BLINDER
The New York Times
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November 9, 2008
Remember That Capitalism Is More Than a Spectator Sport By ALAN S. BLINDER
AMONG the daunting set of tasks ahead for the president-elect, perhaps the most basic is to restore a sense of fairness to and faith in our economic system — much as Franklin D. Roosevelt did in the 1930s.
For too many years, too many Americans watched helplessly as the economic world passed them by, the top dogs prospered, and their national government either sat by passively or intervened to help the “haves.” No wonder trust in the system plummeted. It was hanging by a thread when the financial crisis erupted. Now, it has been destroyed.
An economy isn’t supposed to work that way. Our celebrated capitalist democracy is designed to be a participation sport — not a spectator sport — and one in which the average American can still win. So the new president’s most fundamental job is to restore the people’s confidence that the economy will perform — for them.
While any new president would prefer a loftier starting point, Barack Obama will have to begin with the troubled Troubled Asset Relief Program. The way the Bush administration started it has left the $700 billion bank bailout in danger of becoming the most unpopular use of public money in the history of the republic — unless something is done fast.
If it’s not already too late, the new president must convince Americans that the bailout is being managed for their benefit, not for Wall Street’s. Because the first $250 billion or so is being doled out to banks without asking anything in return, this will be no easy task. Quick changes in the bailout program — and I mean changes that ordinary people can understand — are necessary.
I’d start by sending a large dollop of that bailout money to Main Street — literally. That means devoting substantial sums to refinancing home mortgages that might otherwise go into foreclosure, which is what the head of the Federal Deposit Insurance Corporation, Sheila Bair (bless her heart!), has been urging for months. The president-elect can be a powerful ally for Ms. Bair.
There are a number of ways to mitigate the impending wave of foreclosures. To those who object that refinancing mortgages one at a time is too slow, Mr. Obama should have two replies. First, let’s end the delays and get started. Second, the Home Owners’ Loan Corporation took on a much larger task — relative to the economy’s size — in the New Deal, and succeeded admirably. Can’t we match the speed of the 1930s? Yes, we can.
Next up, after reforming the bailout plan, is the Economic Recovery Act of 2009. Given the likely severity of the economic slide, a large dose of fiscal stimulus — amounting to perhaps 2 percent of G.D.P., or roughly $280 billion — is needed either in the lame-duck Congressional session this month or soon after Inauguration Day. The new president must guide Congress away from passing an unprincipled hodgepodge of members’ favorite projects that would just remind the public of what’s wrong with Washington. Instead, we need a bill that has clear objectives, is well designed to achieve them, does not do long-term harm in the name of short-run help — and can be explained to the body politic.
Regarding objectives, I’d suggest sticking to two: creating jobs by creating new spending, and alleviating the misery that accompanies deep recessions.
The first criterion points toward such items as more generous unemployment insurance and food-stamp benefits, because that money will be spent quickly. It also points toward grants and loans to hard-pressed state and local governments, so they don’t cut their spending or raise taxes. Because this recession will likely be lengthy, not fleeting, a large-scale public infrastructure program — with vigorous anti-pork provisions — also makes sense.
Again, the New Deal offers examples. Temporary institutions like the Civilian Conservation Corps and the Works Progress Administration provided much-needed jobs but also left a legacy of new public infrastructure — the people’s capital, if you will.
The second criterion again points toward more generous unemployment insurance and food-stamp benefits, but also toward policies like these: expanded trade adjustment assistance for displaced workers, more home heating assistance for low-income households, broader health insurance coverage — a step toward universal coverage — and a plan that gets serious about job retraining. (Here, tiny Denmark may be a good model.)
These and related programs are often referred to as the “social safety net,” and America’s is in tatters. But we need both repairs and a new metaphor. Lyndon B. Johnson had it right when he called upon the government to provide a “hand up, not a handout.” The Obama administration should seek to create a new “social trampoline” that not only catches people when they fall, but also propels them back into productive employment. If properly designed, such a social trampoline would both ease the short-run pain of recession and facilitate the long-run adjustment to globalization.
And at every step along the way, Mr. Obama should make abundant use of the presidential bully pulpit to explain, to cajole and to bring along not just the Congress, but also the people — just as Roosevelt did. Americans need to feel, once again, that it’s their economy, and that the government is working on their behalf. Here, a little eloquence can go a long way. Fortunately, we just elected a man who has a lot.
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November 9, 2008
Remember That Capitalism Is More Than a Spectator Sport By ALAN S. BLINDER
AMONG the daunting set of tasks ahead for the president-elect, perhaps the most basic is to restore a sense of fairness to and faith in our economic system — much as Franklin D. Roosevelt did in the 1930s.
For too many years, too many Americans watched helplessly as the economic world passed them by, the top dogs prospered, and their national government either sat by passively or intervened to help the “haves.” No wonder trust in the system plummeted. It was hanging by a thread when the financial crisis erupted. Now, it has been destroyed.
An economy isn’t supposed to work that way. Our celebrated capitalist democracy is designed to be a participation sport — not a spectator sport — and one in which the average American can still win. So the new president’s most fundamental job is to restore the people’s confidence that the economy will perform — for them.
While any new president would prefer a loftier starting point, Barack Obama will have to begin with the troubled Troubled Asset Relief Program. The way the Bush administration started it has left the $700 billion bank bailout in danger of becoming the most unpopular use of public money in the history of the republic — unless something is done fast.
If it’s not already too late, the new president must convince Americans that the bailout is being managed for their benefit, not for Wall Street’s. Because the first $250 billion or so is being doled out to banks without asking anything in return, this will be no easy task. Quick changes in the bailout program — and I mean changes that ordinary people can understand — are necessary.
I’d start by sending a large dollop of that bailout money to Main Street — literally. That means devoting substantial sums to refinancing home mortgages that might otherwise go into foreclosure, which is what the head of the Federal Deposit Insurance Corporation, Sheila Bair (bless her heart!), has been urging for months. The president-elect can be a powerful ally for Ms. Bair.
There are a number of ways to mitigate the impending wave of foreclosures. To those who object that refinancing mortgages one at a time is too slow, Mr. Obama should have two replies. First, let’s end the delays and get started. Second, the Home Owners’ Loan Corporation took on a much larger task — relative to the economy’s size — in the New Deal, and succeeded admirably. Can’t we match the speed of the 1930s? Yes, we can.
Next up, after reforming the bailout plan, is the Economic Recovery Act of 2009. Given the likely severity of the economic slide, a large dose of fiscal stimulus — amounting to perhaps 2 percent of G.D.P., or roughly $280 billion — is needed either in the lame-duck Congressional session this month or soon after Inauguration Day. The new president must guide Congress away from passing an unprincipled hodgepodge of members’ favorite projects that would just remind the public of what’s wrong with Washington. Instead, we need a bill that has clear objectives, is well designed to achieve them, does not do long-term harm in the name of short-run help — and can be explained to the body politic.
Regarding objectives, I’d suggest sticking to two: creating jobs by creating new spending, and alleviating the misery that accompanies deep recessions.
The first criterion points toward such items as more generous unemployment insurance and food-stamp benefits, because that money will be spent quickly. It also points toward grants and loans to hard-pressed state and local governments, so they don’t cut their spending or raise taxes. Because this recession will likely be lengthy, not fleeting, a large-scale public infrastructure program — with vigorous anti-pork provisions — also makes sense.
Again, the New Deal offers examples. Temporary institutions like the Civilian Conservation Corps and the Works Progress Administration provided much-needed jobs but also left a legacy of new public infrastructure — the people’s capital, if you will.
The second criterion again points toward more generous unemployment insurance and food-stamp benefits, but also toward policies like these: expanded trade adjustment assistance for displaced workers, more home heating assistance for low-income households, broader health insurance coverage — a step toward universal coverage — and a plan that gets serious about job retraining. (Here, tiny Denmark may be a good model.)
These and related programs are often referred to as the “social safety net,” and America’s is in tatters. But we need both repairs and a new metaphor. Lyndon B. Johnson had it right when he called upon the government to provide a “hand up, not a handout.” The Obama administration should seek to create a new “social trampoline” that not only catches people when they fall, but also propels them back into productive employment. If properly designed, such a social trampoline would both ease the short-run pain of recession and facilitate the long-run adjustment to globalization.
And at every step along the way, Mr. Obama should make abundant use of the presidential bully pulpit to explain, to cajole and to bring along not just the Congress, but also the people — just as Roosevelt did. Americans need to feel, once again, that it’s their economy, and that the government is working on their behalf. Here, a little eloquence can go a long way. Fortunately, we just elected a man who has a lot.
The Real Mandate Is to Bridge the Wealth Gap By ROBERT J. SHILLER
The New York Times
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November 9, 2008
The Real Mandate Is to Bridge the Wealth Gap By ROBERT J. SHILLER
THE new president will have a clear mandate to redress economic inequality. During the campaign, John McCain made sure that voters clearly heard Barack Obama say “spread the wealth around,” and they elected him anyway.
Indeed, there has been a significant, decades-long trend toward greater inequality that needs to be corrected. The president-elect needs to seize the opportunity and to do something really effective to prevent inequality from getting much worse.
The financial crisis that afflicts the country is largely a result of speculative bubbles, built on false hopes, in the housing and stock markets. Many Americans thought that they would rise in the economic hierarchy from one or another of these investments, and their disappointment is profound. As dreams have been lost, the gap between the wealthiest and those struggling to provide basic items for their families will become more evident and more painful.
The best way to battle gratuitous inequality is to make our financial institutions better embody the true principles of risk management. Financial theory is all about incentives for people to work effectively, and diversifying against random shocks by sharing them among many investors. At its essence, finance is really more about helping and sharing than “beating the market.”
Traditional mutual funds and retirement saving plans, as well as insurance plans for loss of one’s home due to fire or flood, or of one’s income due to disability, are actually risk management vehicles that help reduce inequality. The new president’s important mission should be to broaden these plans.
It may seem paradoxical to try to lessen inequality by relying on the institutions that are most blamed today, but it is only through these institutions that inequality reduction can really work well in a capitalist economy. Enhanced financial institutions could serve the real purpose that financial theory proposes: serving the people.
This would mean transforming the kind of ad hoc measures now used to help economically stressed people in the current crisis into permanent measures that are grounded in solid financial theory and augmented with an understanding of human nature.
In my book “The Subprime Solution: How Today’s Global Financial Crisis Happened and What to Do About It,” I outlined three areas of action that would democratize finance — make it work better for the people — and help prevent future crises. We must improve the information infrastructure, encourage broader and more robust risk markets, and develop better retail financial products. Each of these goals would require work by both the government and the private sector, and all would generalize and privatize the emergency measures already taken, so they become systematic.
To improve the information infrastructure, we need to subsidize financial advice for the common man. The crisis we are in is largely due to investor ignorance. Some emergency measures, like the Hope Now Alliance, have been set up essentially to offer such help, but these will presumably be dismantled after the crisis, and they are not well designed for serving investors’ broad needs. We need some permanent subsidies to get the full scope of financial advice out to the people.
Second, we need to broaden financial markets to improve risk management. We need sophisticated systems that will act as insurance plans against unexpected risks. The government could lead the way to a historic development of financial infrastructure.
Third, we need to change retail financial institutions, notably those that grant and service mortgages. Recent government policy has encouraged workouts for defaulting mortgages — again an impromptu, after-the-fact measure. These workouts should have been spelled out in the original of what I have called a “continuous workout mortgage.” Then workouts could be systematic, automatic and free-market, with costs priced into the original mortgage rate.
A fourth and more radical step would be to index the tax system to income inequality. The system would automatically become more progressive if inequality became more acute. Changes in tax rates would be made in the future, not now, easing the transition’s shock to the public. Leonard Burman, a former Treasury official for President Bill Clinton and now head of the Tax Policy Center in Washington, has been working with me to transform this idea into a sketch of a program we call the Rising Tide Tax System. We found that if such a program had been instituted 30 years ago, even in a partial form, we could have lessened economic inequality.
In short, the best thing that President-elect Obama can do is to set up permanent new structures to harness the innovations of finance to improve people’s lives on Main Street. Americans will support a president who works hard both to maintain incentives central to our capitalistic economy, and to ensure fundamental fairness. If Mr. Obama does both, he will leave a lasting legacy.
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November 9, 2008
The Real Mandate Is to Bridge the Wealth Gap By ROBERT J. SHILLER
THE new president will have a clear mandate to redress economic inequality. During the campaign, John McCain made sure that voters clearly heard Barack Obama say “spread the wealth around,” and they elected him anyway.
Indeed, there has been a significant, decades-long trend toward greater inequality that needs to be corrected. The president-elect needs to seize the opportunity and to do something really effective to prevent inequality from getting much worse.
The financial crisis that afflicts the country is largely a result of speculative bubbles, built on false hopes, in the housing and stock markets. Many Americans thought that they would rise in the economic hierarchy from one or another of these investments, and their disappointment is profound. As dreams have been lost, the gap between the wealthiest and those struggling to provide basic items for their families will become more evident and more painful.
The best way to battle gratuitous inequality is to make our financial institutions better embody the true principles of risk management. Financial theory is all about incentives for people to work effectively, and diversifying against random shocks by sharing them among many investors. At its essence, finance is really more about helping and sharing than “beating the market.”
Traditional mutual funds and retirement saving plans, as well as insurance plans for loss of one’s home due to fire or flood, or of one’s income due to disability, are actually risk management vehicles that help reduce inequality. The new president’s important mission should be to broaden these plans.
It may seem paradoxical to try to lessen inequality by relying on the institutions that are most blamed today, but it is only through these institutions that inequality reduction can really work well in a capitalist economy. Enhanced financial institutions could serve the real purpose that financial theory proposes: serving the people.
This would mean transforming the kind of ad hoc measures now used to help economically stressed people in the current crisis into permanent measures that are grounded in solid financial theory and augmented with an understanding of human nature.
In my book “The Subprime Solution: How Today’s Global Financial Crisis Happened and What to Do About It,” I outlined three areas of action that would democratize finance — make it work better for the people — and help prevent future crises. We must improve the information infrastructure, encourage broader and more robust risk markets, and develop better retail financial products. Each of these goals would require work by both the government and the private sector, and all would generalize and privatize the emergency measures already taken, so they become systematic.
To improve the information infrastructure, we need to subsidize financial advice for the common man. The crisis we are in is largely due to investor ignorance. Some emergency measures, like the Hope Now Alliance, have been set up essentially to offer such help, but these will presumably be dismantled after the crisis, and they are not well designed for serving investors’ broad needs. We need some permanent subsidies to get the full scope of financial advice out to the people.
Second, we need to broaden financial markets to improve risk management. We need sophisticated systems that will act as insurance plans against unexpected risks. The government could lead the way to a historic development of financial infrastructure.
Third, we need to change retail financial institutions, notably those that grant and service mortgages. Recent government policy has encouraged workouts for defaulting mortgages — again an impromptu, after-the-fact measure. These workouts should have been spelled out in the original of what I have called a “continuous workout mortgage.” Then workouts could be systematic, automatic and free-market, with costs priced into the original mortgage rate.
A fourth and more radical step would be to index the tax system to income inequality. The system would automatically become more progressive if inequality became more acute. Changes in tax rates would be made in the future, not now, easing the transition’s shock to the public. Leonard Burman, a former Treasury official for President Bill Clinton and now head of the Tax Policy Center in Washington, has been working with me to transform this idea into a sketch of a program we call the Rising Tide Tax System. We found that if such a program had been instituted 30 years ago, even in a partial form, we could have lessened economic inequality.
In short, the best thing that President-elect Obama can do is to set up permanent new structures to harness the innovations of finance to improve people’s lives on Main Street. Americans will support a president who works hard both to maintain incentives central to our capitalistic economy, and to ensure fundamental fairness. If Mr. Obama does both, he will leave a lasting legacy.
Home
* World
* U.S.
* N.Y. / Region
* Business
* Technology
* Science
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* Opinion
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* Travel
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* Real Estate
* Automobiles
* Back to Top
Copyright 2008 The New York Times Company
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The Mood Always Matters, So Restore Confidence First By TYLER COWEN
The New York Times
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November 9, 2008
The Mood Always Matters, So Restore Confidence First By TYLER COWEN
HIGH deficits and a declining economy will limit the hand of the new president in many matters of economic policy. Health care reform usually proves more expensive than promised, and voters are in no mood for higher gasoline or energy taxes. Still, President-elect Barack Obama faces the very important task of restoring confidence in our nation’s economy.
He will need to appear calm and purposive, and to articulate to the American people the underlying economic strengths. Even if some of this is wishful thinking, there is a chance that positive attitudes will improve the reality on the ground.
Over the last several months, the Bush administration has mishandled this issue.
Most of all, the “Paulson plan” to bail out the economy was not executed gracefully. The Treasury secretary, Henry M. Paulson Jr., warned the nation that something terrible would happen if the plan were not passed; that terrified both Wall Street and Main Street.
The early version of the plan would have given the Treasury secretary almost unlimited powers, without checks and balances on his decisions. The market took that extreme proposal as a sign that the situation was truly dire.
After the scare came indecisiveness. Whether or not the Paulson plan was a good idea, no one articulated how it would work or why it was needed. The initial plan was then dumped for a successor plan — laden with Congressional pork, by the way — and then this second plan turned out to be less important, after it was passed, than the need for an immediate recapitalization of the banking system.
Along the way it was never clear what Congress favored or why, and the regulators appeared to be stumbling from one crisis to the next, scaring the American public along the way. Political uncertainty hardly caused the crisis, but politics made it much worse.
EVEN if you believe the dubious proposition that an initial scare was needed to pass legislation, the time has come to patch up confidence. The federal government lacked a commanding presence during the early stages of the financial crisis.
Rebuilding confidence might seem a small matter, but it is not. The truth is this: America is a wonderful and magnanimous nation when it is a winner, but Americans are not used to losing and Americans are not used to panic.
Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position.
Very bad events can cause a panic among the citizenry or its leaders, which translates into subsequent bad decisions. For a classic example of a negative policy dynamic, look at 9/11. The United States lost 3,000 lives and a great deal of wealth and confidence. The government then took actions, most of all the Iraq war, which led to even greater losses.
We are in danger of getting stuck in another negative dynamic, but this time in the realm of economics. We might follow up the financial crisis with some worse responses and policies.
It’s not just the country’s future that is on the line. Despite the commonality of anti-American rhetoric, the United States sets the tone for much of the world.
If America is seen as turning the corner and stabilizing its economy, that will be a positive cue for many other countries.
The notion of a downward spiral of ideas and events is not unprecedented. Starting in the early part of the 20th century, the West experienced one awful event after another, including a world war, a flu pandemic and a major depression. The response was a global spread of totalitarian ideas, a loss of confidence in democracy and capitalism and, eventually, another war.
While today’s world is far from this point, there is a small chance that we will move in an unstable and worsening direction. Steering away from it should be a priority for the next president.
Rebuilding confidence won’t be easy. If our next president seems flip or overconfident, observers will be skeptical above all else. Denying our basic economic problems will erode credibility, but those problems — most of all our debt and a collapsed financial sector — need to be acknowledged in a way that shows a path forward.
We need to avoid overreaction at the same time we need to return to feeling in control.
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November 9, 2008
The Mood Always Matters, So Restore Confidence First By TYLER COWEN
HIGH deficits and a declining economy will limit the hand of the new president in many matters of economic policy. Health care reform usually proves more expensive than promised, and voters are in no mood for higher gasoline or energy taxes. Still, President-elect Barack Obama faces the very important task of restoring confidence in our nation’s economy.
He will need to appear calm and purposive, and to articulate to the American people the underlying economic strengths. Even if some of this is wishful thinking, there is a chance that positive attitudes will improve the reality on the ground.
Over the last several months, the Bush administration has mishandled this issue.
Most of all, the “Paulson plan” to bail out the economy was not executed gracefully. The Treasury secretary, Henry M. Paulson Jr., warned the nation that something terrible would happen if the plan were not passed; that terrified both Wall Street and Main Street.
The early version of the plan would have given the Treasury secretary almost unlimited powers, without checks and balances on his decisions. The market took that extreme proposal as a sign that the situation was truly dire.
After the scare came indecisiveness. Whether or not the Paulson plan was a good idea, no one articulated how it would work or why it was needed. The initial plan was then dumped for a successor plan — laden with Congressional pork, by the way — and then this second plan turned out to be less important, after it was passed, than the need for an immediate recapitalization of the banking system.
Along the way it was never clear what Congress favored or why, and the regulators appeared to be stumbling from one crisis to the next, scaring the American public along the way. Political uncertainty hardly caused the crisis, but politics made it much worse.
EVEN if you believe the dubious proposition that an initial scare was needed to pass legislation, the time has come to patch up confidence. The federal government lacked a commanding presence during the early stages of the financial crisis.
Rebuilding confidence might seem a small matter, but it is not. The truth is this: America is a wonderful and magnanimous nation when it is a winner, but Americans are not used to losing and Americans are not used to panic.
Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position.
Very bad events can cause a panic among the citizenry or its leaders, which translates into subsequent bad decisions. For a classic example of a negative policy dynamic, look at 9/11. The United States lost 3,000 lives and a great deal of wealth and confidence. The government then took actions, most of all the Iraq war, which led to even greater losses.
We are in danger of getting stuck in another negative dynamic, but this time in the realm of economics. We might follow up the financial crisis with some worse responses and policies.
It’s not just the country’s future that is on the line. Despite the commonality of anti-American rhetoric, the United States sets the tone for much of the world.
If America is seen as turning the corner and stabilizing its economy, that will be a positive cue for many other countries.
The notion of a downward spiral of ideas and events is not unprecedented. Starting in the early part of the 20th century, the West experienced one awful event after another, including a world war, a flu pandemic and a major depression. The response was a global spread of totalitarian ideas, a loss of confidence in democracy and capitalism and, eventually, another war.
While today’s world is far from this point, there is a small chance that we will move in an unstable and worsening direction. Steering away from it should be a priority for the next president.
Rebuilding confidence won’t be easy. If our next president seems flip or overconfident, observers will be skeptical above all else. Denying our basic economic problems will erode credibility, but those problems — most of all our debt and a collapsed financial sector — need to be acknowledged in a way that shows a path forward.
We need to avoid overreaction at the same time we need to return to feeling in control.
Put Away the Wish List, and Help Households Bounce Back By PETER BERNSTEIN
The New York Times
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November 9, 2008
Put Away the Wish List, and Help Households Bounce Back By PETER BERNSTEIN
CAMPAIGN talk was all very well, but the new president will have to start his administration with serious business. He should begin his Inaugural Address by saying that most campaign promises must be put on a wait list while he gives his full attention to the critical condition of the economy. There is no time for lengthy deliberation and debate.
The restoration of some kind of liquidity and order to the financial sector is the first step to recovery. The departing administration has properly made the financial sector its priority, and its efforts appear to be bearing fruit. But these efforts have not been enough.
The president’s most important priority should be to support the household sector. Households and their mortgages were the key to the onset of crisis. Now, with unemployment rising and home prices still falling, the new administration must help households first if we are to have any hope of reversing the devastating course of a recession. Households are the primary customers of American business.
To begin, the president should ask Congress to immediately extend unemployment insurance benefits by six months. But that step, while welcome, is only a balm, not a cure. The cure will develop from a plan to bring stability to home prices. There are two reasons for this emphasis.
First, we can trace the origins of the crisis to the growing pace of defaults on subprime mortgages in the summer of 2007. Until we can contain the defaults on these mortgages and the resulting impact of foreclosure on home prices, the downward pressure on prices will persist. Without such action, these vicious problems will continue to feed on themselves, with further defaults, further fire sales of good homes, further declines in home prices, further threats to the solvency of financial institutions and, most important, further shredding of the morale and the hopes of millions of Americans.
The second reason for focusing on the household sector is the special situation of the current national economy. In earlier recessions, the household sector responded to the pressures of recession but was not the driving force behind those pressures. Now, because of a mortgage crisis induced by falling home prices, millions of people — including those who acted prudently — are in deep trouble with no clear path back to good jobs and steady incomes.
The risk here is not just humanitarian. Indeed, the risk is also to the preservation of the social structure of democracy and to the future progress of America.
There is a limit to how far government guarantees can go, because of the variety of complications in dealing with the mortgage mess. In particular, many mortgages were packaged as collateral for newly created fixed-income paper now owned by investors and institutions all around the world.
Treasury Secretary Henry M. Paulson Jr. proposed a federal government purchase of this so-called toxic paper from financial institutions, which had the attraction of setting a price on these obligations and rendering some liquidity to them. But the mortgages would still be outstanding, and the names of the homeowners who took out those mortgages would still be there. Hence, the ownership of the mortgages might change, but the debtor would still be the same family or individual owing the same amount of money. The main concern now is to help the lender and the homeowner simultaneously.
A solution to these dilemmas would greatly improve the chances of reaching the primary goal: stabilization of home prices. To achieve it, we must alter the terms of these mortgages to contain the foreclosure process and, in time, bring it to an end. Only then can we shrink the number of houses under forced sale conditions and stop the downward pressure on prices.
A compulsory change in mortgage terms would initially appear to damage the lender in order to protect the borrower. But lenders are in as much trouble as borrowers because they cannot collect the money owed them and have little chance of selling a home at a price that would enable them to come out whole. Lenders and borrowers are in this crisis together.
The best solution proposed so far has been from Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. Under this proposal, servicers of mortgages would rewrite outstanding mortgages to a more affordable level for the homeowner by lowering the principal amount owed, by reducing the interest rate, by extending the maturity — which would reduce monthly payments — or by combining these steps. In addition, the government would share a portion of the losses in these mortgages if they went into default.
WHILE this arrangement would mean a lower return than the lender originally expected, the ultimate results would be better and less risky than the losses now being incurred.
Others will come up with improvements to this plan or offer different models, but the main point is to intervene promptly, directly and powerfully to counter the home price debacle.
Only then can we begin to restore hope and optimism to Americans and to the outlook for our economy.
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November 9, 2008
Put Away the Wish List, and Help Households Bounce Back By PETER BERNSTEIN
CAMPAIGN talk was all very well, but the new president will have to start his administration with serious business. He should begin his Inaugural Address by saying that most campaign promises must be put on a wait list while he gives his full attention to the critical condition of the economy. There is no time for lengthy deliberation and debate.
The restoration of some kind of liquidity and order to the financial sector is the first step to recovery. The departing administration has properly made the financial sector its priority, and its efforts appear to be bearing fruit. But these efforts have not been enough.
The president’s most important priority should be to support the household sector. Households and their mortgages were the key to the onset of crisis. Now, with unemployment rising and home prices still falling, the new administration must help households first if we are to have any hope of reversing the devastating course of a recession. Households are the primary customers of American business.
To begin, the president should ask Congress to immediately extend unemployment insurance benefits by six months. But that step, while welcome, is only a balm, not a cure. The cure will develop from a plan to bring stability to home prices. There are two reasons for this emphasis.
First, we can trace the origins of the crisis to the growing pace of defaults on subprime mortgages in the summer of 2007. Until we can contain the defaults on these mortgages and the resulting impact of foreclosure on home prices, the downward pressure on prices will persist. Without such action, these vicious problems will continue to feed on themselves, with further defaults, further fire sales of good homes, further declines in home prices, further threats to the solvency of financial institutions and, most important, further shredding of the morale and the hopes of millions of Americans.
The second reason for focusing on the household sector is the special situation of the current national economy. In earlier recessions, the household sector responded to the pressures of recession but was not the driving force behind those pressures. Now, because of a mortgage crisis induced by falling home prices, millions of people — including those who acted prudently — are in deep trouble with no clear path back to good jobs and steady incomes.
The risk here is not just humanitarian. Indeed, the risk is also to the preservation of the social structure of democracy and to the future progress of America.
There is a limit to how far government guarantees can go, because of the variety of complications in dealing with the mortgage mess. In particular, many mortgages were packaged as collateral for newly created fixed-income paper now owned by investors and institutions all around the world.
Treasury Secretary Henry M. Paulson Jr. proposed a federal government purchase of this so-called toxic paper from financial institutions, which had the attraction of setting a price on these obligations and rendering some liquidity to them. But the mortgages would still be outstanding, and the names of the homeowners who took out those mortgages would still be there. Hence, the ownership of the mortgages might change, but the debtor would still be the same family or individual owing the same amount of money. The main concern now is to help the lender and the homeowner simultaneously.
A solution to these dilemmas would greatly improve the chances of reaching the primary goal: stabilization of home prices. To achieve it, we must alter the terms of these mortgages to contain the foreclosure process and, in time, bring it to an end. Only then can we shrink the number of houses under forced sale conditions and stop the downward pressure on prices.
A compulsory change in mortgage terms would initially appear to damage the lender in order to protect the borrower. But lenders are in as much trouble as borrowers because they cannot collect the money owed them and have little chance of selling a home at a price that would enable them to come out whole. Lenders and borrowers are in this crisis together.
The best solution proposed so far has been from Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. Under this proposal, servicers of mortgages would rewrite outstanding mortgages to a more affordable level for the homeowner by lowering the principal amount owed, by reducing the interest rate, by extending the maturity — which would reduce monthly payments — or by combining these steps. In addition, the government would share a portion of the losses in these mortgages if they went into default.
WHILE this arrangement would mean a lower return than the lender originally expected, the ultimate results would be better and less risky than the losses now being incurred.
Others will come up with improvements to this plan or offer different models, but the main point is to intervene promptly, directly and powerfully to counter the home price debacle.
Only then can we begin to restore hope and optimism to Americans and to the outlook for our economy.
It’s a Time to Listen, and to Obey the Laws of Arithmetic By N. GREGORY MANKIW
The New York Times
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November 9, 2008
It’s a Time to Listen, and to Obey the Laws of Arithmetic By N. GREGORY MANKIW
IT was a good campaign, and a historic victory. As the president-elect gets ready for new responsibilities, here are four ways to become a reliable steward of the economy:
LISTEN TO THE ECONOMISTS During the campaign, Senator Barack Obama assembled an impressive team of economic advisers from the nation’s top universities, including Austan D. Goolsbee of the University of Chicago and David Cutler and Jeffrey Liebman of Harvard. The campaign’s director of economic policy, Jason Furman, is a smart, sensible and well-trained policy economist. I know: he is a former student of mine.
It would be a good idea to pay close attention to what they have to say. They will often give advice quite different from what will be coming from the Congressional leaders Nancy Pelosi and Harry Reid. To make sure the views of economic advisers are heard, they should have offices close to the Oval Office. The chief of staff should invite them to all the relevant meetings.
EMBRACE SOME REPUBLICAN IDEAS No party has a monopoly on truth. It would be wise to adopt the best Republican policy proposals, as Bill Clinton did with welfare reform in 1996.
Health policy is a case in point.
Over the past several months, Senator Obama lambasted Senator John McCain’s proposal to reform the tax code to include a refundable health insurance tax credit. But long before Mr. McCain ever proposed this idea, it was advanced by Mr. Furman, the Obama campaign’s policy director. He can explain why the Furman-McCain plan makes a lot of sense.
Now the new president may decide that this plan does not go far enough. He may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, he will run into the next issue.
PAY ATTENTION TO BUDGET CONSTRAINTS The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare benefits.
Yet during the campaign, Mr. Obama promised to cut taxes for 95 percent of Americans, to vastly expand health insurance coverage and never to cut Social Security benefits or raise the retirement age. The new administration will almost surely have to renege on some of these promises. As the economic team will often say, even if the laws of arithmetic are ignored during campaigns, they become a real constraint when making actual policy.
RECOGNIZE PAST MISTAKES As a new senator, Mr. Obama voted along predictable left-wing lines. As president, he will need a more eclectic, nuanced approach.
Consider trade policy. In the Senate, he voted against the Dominican Republic-Central America Free Trade Agreement. He opposed free-trade agreements with Colombia and South Korea. He supported Senators Charles E. Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. He supported the Byrd Amendment, which encouraged domestic companies to file antidumping suits against foreign competitors. He supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol.
The team of economists can explain why these positions were wrong-headed. Economic isolationism is not in the national interest. A high point of the Clinton presidency was the enactment of the North American Free Trade Agreement, which passed both the House and Senate with a majority of Republicans and a minority of Democrats.
Last Tuesday, many people voted for Mr. Obama hoping that he would achieve the kind of economic success that Mr. Clinton enjoyed in the 1990s. The best chance of delivering what they want requires abandoning some positions and pursuing a more moderate, bipartisan course.
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November 9, 2008
It’s a Time to Listen, and to Obey the Laws of Arithmetic By N. GREGORY MANKIW
IT was a good campaign, and a historic victory. As the president-elect gets ready for new responsibilities, here are four ways to become a reliable steward of the economy:
LISTEN TO THE ECONOMISTS During the campaign, Senator Barack Obama assembled an impressive team of economic advisers from the nation’s top universities, including Austan D. Goolsbee of the University of Chicago and David Cutler and Jeffrey Liebman of Harvard. The campaign’s director of economic policy, Jason Furman, is a smart, sensible and well-trained policy economist. I know: he is a former student of mine.
It would be a good idea to pay close attention to what they have to say. They will often give advice quite different from what will be coming from the Congressional leaders Nancy Pelosi and Harry Reid. To make sure the views of economic advisers are heard, they should have offices close to the Oval Office. The chief of staff should invite them to all the relevant meetings.
EMBRACE SOME REPUBLICAN IDEAS No party has a monopoly on truth. It would be wise to adopt the best Republican policy proposals, as Bill Clinton did with welfare reform in 1996.
Health policy is a case in point.
Over the past several months, Senator Obama lambasted Senator John McCain’s proposal to reform the tax code to include a refundable health insurance tax credit. But long before Mr. McCain ever proposed this idea, it was advanced by Mr. Furman, the Obama campaign’s policy director. He can explain why the Furman-McCain plan makes a lot of sense.
Now the new president may decide that this plan does not go far enough. He may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, he will run into the next issue.
PAY ATTENTION TO BUDGET CONSTRAINTS The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare benefits.
Yet during the campaign, Mr. Obama promised to cut taxes for 95 percent of Americans, to vastly expand health insurance coverage and never to cut Social Security benefits or raise the retirement age. The new administration will almost surely have to renege on some of these promises. As the economic team will often say, even if the laws of arithmetic are ignored during campaigns, they become a real constraint when making actual policy.
RECOGNIZE PAST MISTAKES As a new senator, Mr. Obama voted along predictable left-wing lines. As president, he will need a more eclectic, nuanced approach.
Consider trade policy. In the Senate, he voted against the Dominican Republic-Central America Free Trade Agreement. He opposed free-trade agreements with Colombia and South Korea. He supported Senators Charles E. Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. He supported the Byrd Amendment, which encouraged domestic companies to file antidumping suits against foreign competitors. He supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol.
The team of economists can explain why these positions were wrong-headed. Economic isolationism is not in the national interest. A high point of the Clinton presidency was the enactment of the North American Free Trade Agreement, which passed both the House and Senate with a majority of Republicans and a minority of Democrats.
Last Tuesday, many people voted for Mr. Obama hoping that he would achieve the kind of economic success that Mr. Clinton enjoyed in the 1990s. The best chance of delivering what they want requires abandoning some positions and pursuing a more moderate, bipartisan course.
The Reckoning: How the Thundering Herd Faltered and Fell By GRETCHEN MORGENSON
The New York Times
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November 9, 2008
The Reckoning: How the Thundering Herd Faltered and Fell By GRETCHEN MORGENSON
“We’ve got the right people in place as well as good risk management and controls.” — E. Stanley O’Neal, 2005
THERE were high-fives all around Merrill Lynch headquarters in Lower Manhattan as 2006 drew to a close. The firm’s performance was breathtaking; revenue and earnings had soared, and its shares were up 40 percent for the year.
And Merrill’s decision to invest heavily in the mortgage industry was paying off handsomely. So handsomely, in fact, that on Dec. 30 that year, it essentially doubled down by paying $1.3 billion for First Franklin, a lender specializing in risky mortgages.
The deal would provide Merrill with even more loans for one of its lucrative assembly lines, an operation that bundled and repackaged mortgages so they could be resold to other investors.
It was a moment to savor for E. Stanley O’Neal, Merrill’s autocratic leader, and a group of trusted lieutenants who had helped orchestrate the firm’s profitable but belated mortgage push. Two indispensable members of Mr. O’Neal’s clique were Osman Semerci, who, among other things, ran Merrill’s bond unit, and Ahmass L. Fakahany, the firm’s vice chairman and chief administrative officer.
A native of Turkey who began his career trading stocks in Istanbul, Mr. Semerci, 41, oversaw Merrill’s mortgage operation. He often played the role of tough guy, former executives say, silencing critics who warned about the risks the firm was taking.
At the same time, Mr. Fakahany, 50, an Egyptian-born former Exxon executive who oversaw risk management at Merrill, kept the machinery humming along by loosening internal controls, according to the former executives.
Mr. Semerci’s and Mr. Fakahany’s actions ultimately left their firm vulnerable to the increasingly risky business of manufacturing and selling mortgage securities, say former executives, who requested anonymity to avoid alienating colleagues at Merrill.
To make matters worse, Merrill sped up its hunt for mortgage riches by embracing and trafficking in complex and lightly regulated contracts tied to mortgages and other debt. And Merrill’s often inscrutable financial dance was emblematic of the outsize hazards that Wall Street courted.
While questionable mortgages made to risky borrowers prompted the credit crisis, regulators and investors who continue to pick through the wreckage are finding that exotic products known as derivatives — like those that Merrill used — transformed a financial brush fire into a conflagration.
As subprime lenders began toppling after record waves of homeowners defaulted on their mortgages, Merrill was left with $71 billion of eroding mortgage exotica on its books and billions in losses.
On Sept. 15 this year — less than two years after posting a record-breaking performance for 2006 and following a weekend that saw the collapse of a storied investment bank, Lehman Brothers, and a huge federal bailout of the insurance giant American International Group — Merrill was forced into a merger with Bank of America.
It was an ignominious end to America’s most famous brokerage house, whose ubiquitous corporate logo was a hard-charging bull.
“The mortgage business at Merrill Lynch was an afterthought — they didn’t really have a strategy,” said William Dallas, the founder of Ownit Mortgage Solutions, a lending business in which Merrill bought a stake a few years ago. “They had found this huge profit potential, and everybody wanted a piece of it. But they were pigs about it.”
Mr. Semerci and Mr. Fakahany did not return phone calls seeking comment. Bill Halldin, a Merrill Lynch spokesman, said, “We see no useful purpose in responding to unnamed, former Merrill Lynch employees about a risk management process that has not existed for a year.”
TYPICAL of those who dealt in Wall Street’s dizzying and opaque financial arrangements, Merrill ended up getting burned, former executives say, by inadequately assessing the risks it took with newfangled financial products — an error compounded when it held on to the products far too long.
The fire that Merrill was playing with was an arcane instrument known as a synthetic collateralized debt obligation. The product was an amalgam of collateralized debt obligations (the pools of loans that it bundled for investors) and credit-default swaps (which essentially are insurance that bondholders buy to protect themselves against possible defaults).
Synthetic C.D.O.’s, in other words, are exemplars of a type of modern financial engineering known as derivatives. Essentially, derivatives are financial instruments that can be used to limit risk; their value is “derived” from underlying assets like mortgages, stocks, bonds or commodities. Stock futures, for example, are a common and relatively simple derivative.
Among the more complex derivatives, however, are the mortgage-related variety. They involve a cornucopia of exotic, jumbo-size contracts ultimately linked to real-world loans and debts. So as the housing market went sour, and borrowers defaulted on their mortgages, these contracts collapsed, too, amplifying the meltdown.
The synthetic C.D.O. grew out of a structure that an elite team of J. P. Morgan bankers invented in 1997. Their goal was to reduce the risk that Morgan would lose money when it made loans to top-tier corporate borrowers like I.B.M., General Electric and Procter & Gamble.
Regular C.D.O.’s contain hundreds or thousands of actual loans or bonds. Synthetics, on the other hand, replace those physical bonds with a computer-generated group of credit-default swaps. Synthetics could be slapped together faster, and they generated fatter fees than regular C.D.O.’s, making them especially attractive to Wall Street.
Michael A. J. Farrell is chief executive of Annaly Capital Management, a real estate investment trust that manages mortgage assets. A unit of his company has liquidated billions of dollars in collateralized debt obligations for clients, and he believes that derivatives have magnified the pain of the financial collapse.
“We have auctioned billions in credit-default swap positions in our C.D.O. liquidation business,” Mr. Farrell said, “and what we have learned is that the carnage we are witnessing now would have been much more contained, to use that overworked word, without credit-default swaps.”
The bankers who invented the synthetics for J. P. Morgan say they kept only the highest-quality and most bulletproof portions of their product in-house, known as the super senior slice. They quickly sold anything riskier to firms that were willing to take on the dangers of ownership in exchange for fatter fees.
“In 1997 and 1998, when we invented super senior risk, we spent a lot of time examining how much is too much to have on our books,” said Blythe Masters, who was on the small team that invented the synthetic C.D.O. and is now head of commodities at JPMorgan Chase. “We would warehouse risk for a period of time, but we were always focused on developing a market for whatever we did. The idea was we were financial intermediaries. We weren’t in the investment business.”
For years, the product that Ms. Masters and her colleagues invented remained just a mechanism for offloading risk in high-grade corporate lending. But as often occurs with Wall Street alchemy, a good idea started to be misused — and a product initially devised to insulate against risk soon morphed into a device that actually concentrated dangers.
This shift began in 2002, when low interest rates pushed investors to seek higher returns.
“Investors said, ‘I don’t want to be in equities anymore and I’m not getting any return in my bond positions,’ ” said William T. Winters, co-chief executive of JPMorgan’s investment bank and a colleague of Ms. Masters on the team that invented the first synthetic. “Two things happened. They took more and more leverage, and they reached for riskier asset classes. Give me yield, give me leverage, give me return.”
A few years ago, of course, some of the biggest returns were being harvested in the riskier reaches of the mortgage market. As C.D.O.’s and other forms of bundled mortgages were pooled nationwide, banks, investors and rating agencies all claimed that the risk of owning such packages was softened because of the broad diversity of loans in each pool.
In other words, a few lemons couldn’t drag down the value of the whole package.
But the risk was beneath the surface. By 2005, with the home lending mania in full swing, the amount of C.D.O.’s holding opaque and risky mortgage assets far exceeded C.D.O.’s composed of blue-chip corporate loans. And inside even more abstract synthetic C.D.O.’s, the risk was harder to parse and much easier to overlook.
Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago, describes synthetic C.D.O.’s as a fanciful structure “sort of like a unicorn born out of the imagination.”
More important, she said, is that the products allowed dicier assets to be passed off as higher-quality goods, giving banks and investors who traded them a false sense of security.
“A lot of deals were doomed from the start,” Ms. Tavakoli said.
BY 2005, Merrill was in a full-on race to become the biggest mortgage player on Wall Street. A latecomer to the arena, it especially envied Lehman Brothers for the lush mortgage profits that it was already hauling in, former Merrill executives say.
Lehman had also built a mortgage assembly line that Merrill wanted to emulate. Lehman made money every step of the way: by originating mortgage loans, administering the paperwork surrounding them, and packaging them into C.D.O.’s that could be sold to investors.
Eager to build its own money machine, Merrill went on a buying spree. From January 2005 to January 2007, it made 12 major purchases of residential or commercial mortgage-related companies or assets. It bought commercial properties in South Korea, Germany and Britain, a loan servicing operation in Italy and a mortgage lender in Britain. The biggest acquisition was First Franklin, a domestic subprime lender.
The firm’s goal, according to people who met with Merrill executives about possible deals, was to generate in-house mortgages that it could package into C.D.O.’s. This allowed Merrill to avoid relying entirely on other companies for mortgages.
That approach seemed to be common sense, but it was never clear how well Merrill’s management understood the risks in the mortgage business.
Mr. O’Neal declined to comment for this article. But John Kanas, the founder and former chief executive of North Fork Bancorp, recalls the many hours he spent talking with Mr. O’Neal, Mr. Fakahany and other Merrill executives about a possible merger in 2005.
“We spent a great deal of time with Stan and the entire management team at Merrill trying to learn their business and trying to explain our business to them,” Mr. Kanas said. “Unfortunately, in the end we were put off by the fact that we couldn’t get comfortable with their risk profile and we couldn’t get past the fact that we thought there was a distinct possibility that they didn’t understand fully their own risk profile.”
Mr. Kanas, who later sold his bank to the Capital One Financial Corporation, had many meetings with Mr. Fakahany, who was responsible for the firm’s credit and market risk management as well as its corporate governance and internal controls. Former executives say Mr. Fakahany had weakened Merrill’s risk management unit by removing longstanding employees who “walked the floor,” talking with traders and other workers to figure out what kinds of risks the firm was taking on.
Former Merrill executives say that the people chosen to replace those employees were loyal to Mr. O’Neal and his top lieutenants. That made them more concerned about achieving their superiors’ profit goals, they say, than about monitoring the firm’s risks.
A pivotal figure in the mortgage push was Mr. Semerci, a details-oriented manager whom some former employees described as intimidating. He joined Merrill in 1992 as a financial consultant in Geneva.
After that, he became a fixed-income sales representative for the firm’s London unit. He later rose quickly through Merrill’s ranks, ultimately overseeing a broad division: fixed income, currencies and commodities.
Always carrying a notebook with his operations’ daily profit-and-loss statements, Mr. Semerci would chastise traders and other moneymakers who told risk management officials exactly what they were doing, a former senior Merrill executive said.
“There was no dissent,” said the former executive, who requested anonymity to maintain relationships on Wall Street. “So information never really traveled.”
Beyond assembling its own mortgage machine and failing to police risks so it could book fatter profits, Merrill also dove into the C.D.O. market — primarily synthetics.
Unlike the C.D.O. pioneers at J. P. Morgan who saw themselves as financial designers and intermediaries wary of the dangers of holding on to their products too long, Merrill seemed unafraid to stockpile C.D.O.’s to reap more fees.
Although Merrill had a scant presence in the C.D.O. market in 2002, four years later it was the world’s biggest underwriter of the products.
The risk in Merrill’s business model became viral after A.I.G. stopped insuring the highest-quality portions of the firm’s C.D.O.’s against default.
For years, Merrill had paid A.I.G. to insure its C.D.O. stakes to limit potential damage from defaults. But at the end of 2005, A.I.G. suddenly said it had had enough, citing concerns about overly aggressive home lending. Merrill couldn’t find an adequate replacement to insure itself. Rather than slow down, however, Merrill’s C.D.O. factory continued to hum and the firm’s unhedged mortgage bets grew, its filings show.
The number of mortgage-related C.D.O.’s being produced across Wall Street was staggering, and all of that activity represented a gamble that mortgages underwritten during the most manic lending boom ever would pay off.
In 2005, firms issued $178 billion in mortgage and other asset-backed C.D.O.’s, compared with just $4 billion worth of C.D.O.’s that used safer, high-grade corporate bonds as collateral. In 2006, issuance of mortgage and asset-backed C.D.O.’s totaled $316 billion, versus $40 billion backed by corporate bonds.
Firms underwriting the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold. So the fees generated on the $316 billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006 alone, for example, would have been about $1.3 billion to $8 billion.
Merrill, the biggest player in the C.D.O. game, appeared to be a cash register. After its banner year in 2006, it produced another earnings record in the first quarter of 2007, finally beating three rivals, Lehman, Goldman Sachs and Bear Stearns, in profit growth.
But as 2007 progressed, the mortgage business began to fall apart — and the impact was brutal. As mortgages started to fail, the debt ratings on C.D.O.’s were cut; anyone left holding the products was locked in a downward spiral because no one wanted to buy something that was collapsing. Among the biggest victims was Merrill.
In October 2007, the firm shocked investors when it announced a $7.9 billion write-down related to its exposure to mortgage C.D.O.’s, resulting in a $2.3 billion loss, the largest in the firm’s history. Mr. Semerci was forced out, later landing at a London-based hedge fund, the Duet Group.
Merrill’s board also ousted Mr. O’Neal. On top of the $70 million in compensation he was awarded during his four-year tenure as chief executive, Mr. O’Neal departed with an exit package worth $161 million.
JOHN A. THAIN, a former Goldman Sachs executive who was also head of the New York Stock Exchange, was hired as Merrill’s chief executive to try to clean up Mr. O’Neal’s mess. But multibillion-dollar losses kept piling up, and Merrill was hard pressed to raise enough to replenish its coffers.
“None of the trading businesses should be taking risks, either single positions or single trades, that wipe out the entire year’s earnings of their own business,” Mr. Thain said in January. “And they certainly shouldn’t take a risk to wipe out the earnings of the entire firm.”
A month later, Mr. Fakahany left Merrill. Upon his departure, in a statement that Merrill issued, he said: “I leave knowing that the firm’s financial condition is significantly enhanced and the new team is in place and moving forward.”
Mr. Fakahany continued to receive a Merrill salary until the end of this summer; he does not appear to have received an exit package.
Mr. Thain, meanwhile, sold off assets for whatever price he could get to try to salvage the firm. In August, he arranged a sale of $31 billion of Merrill’s C.D.O.’s to an investment firm for 22 cents on the dollar. For the first nine months of this year, Merrill recorded net losses of $14.7 billion on its C.D.O.’s. Through October, some $260 billion of asset-backed C.D.O.’s have started to default.
As the depth of Merrill’s problems emerged, its shares plummeted. With Lehman on the verge of collapse, Wall Street began to wonder if Merrill would be next.
Some banks were so concerned that they considered stopping trading with Merrill if Lehman went under, according to participants in the Federal Reserve’s weekend meetings on Sept. 13 and 14.
The following Monday, Merrill — torn apart by its C.D.O. venture — was taken over by Bank of America.
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November 9, 2008
The Reckoning: How the Thundering Herd Faltered and Fell By GRETCHEN MORGENSON
“We’ve got the right people in place as well as good risk management and controls.” — E. Stanley O’Neal, 2005
THERE were high-fives all around Merrill Lynch headquarters in Lower Manhattan as 2006 drew to a close. The firm’s performance was breathtaking; revenue and earnings had soared, and its shares were up 40 percent for the year.
And Merrill’s decision to invest heavily in the mortgage industry was paying off handsomely. So handsomely, in fact, that on Dec. 30 that year, it essentially doubled down by paying $1.3 billion for First Franklin, a lender specializing in risky mortgages.
The deal would provide Merrill with even more loans for one of its lucrative assembly lines, an operation that bundled and repackaged mortgages so they could be resold to other investors.
It was a moment to savor for E. Stanley O’Neal, Merrill’s autocratic leader, and a group of trusted lieutenants who had helped orchestrate the firm’s profitable but belated mortgage push. Two indispensable members of Mr. O’Neal’s clique were Osman Semerci, who, among other things, ran Merrill’s bond unit, and Ahmass L. Fakahany, the firm’s vice chairman and chief administrative officer.
A native of Turkey who began his career trading stocks in Istanbul, Mr. Semerci, 41, oversaw Merrill’s mortgage operation. He often played the role of tough guy, former executives say, silencing critics who warned about the risks the firm was taking.
At the same time, Mr. Fakahany, 50, an Egyptian-born former Exxon executive who oversaw risk management at Merrill, kept the machinery humming along by loosening internal controls, according to the former executives.
Mr. Semerci’s and Mr. Fakahany’s actions ultimately left their firm vulnerable to the increasingly risky business of manufacturing and selling mortgage securities, say former executives, who requested anonymity to avoid alienating colleagues at Merrill.
To make matters worse, Merrill sped up its hunt for mortgage riches by embracing and trafficking in complex and lightly regulated contracts tied to mortgages and other debt. And Merrill’s often inscrutable financial dance was emblematic of the outsize hazards that Wall Street courted.
While questionable mortgages made to risky borrowers prompted the credit crisis, regulators and investors who continue to pick through the wreckage are finding that exotic products known as derivatives — like those that Merrill used — transformed a financial brush fire into a conflagration.
As subprime lenders began toppling after record waves of homeowners defaulted on their mortgages, Merrill was left with $71 billion of eroding mortgage exotica on its books and billions in losses.
On Sept. 15 this year — less than two years after posting a record-breaking performance for 2006 and following a weekend that saw the collapse of a storied investment bank, Lehman Brothers, and a huge federal bailout of the insurance giant American International Group — Merrill was forced into a merger with Bank of America.
It was an ignominious end to America’s most famous brokerage house, whose ubiquitous corporate logo was a hard-charging bull.
“The mortgage business at Merrill Lynch was an afterthought — they didn’t really have a strategy,” said William Dallas, the founder of Ownit Mortgage Solutions, a lending business in which Merrill bought a stake a few years ago. “They had found this huge profit potential, and everybody wanted a piece of it. But they were pigs about it.”
Mr. Semerci and Mr. Fakahany did not return phone calls seeking comment. Bill Halldin, a Merrill Lynch spokesman, said, “We see no useful purpose in responding to unnamed, former Merrill Lynch employees about a risk management process that has not existed for a year.”
TYPICAL of those who dealt in Wall Street’s dizzying and opaque financial arrangements, Merrill ended up getting burned, former executives say, by inadequately assessing the risks it took with newfangled financial products — an error compounded when it held on to the products far too long.
The fire that Merrill was playing with was an arcane instrument known as a synthetic collateralized debt obligation. The product was an amalgam of collateralized debt obligations (the pools of loans that it bundled for investors) and credit-default swaps (which essentially are insurance that bondholders buy to protect themselves against possible defaults).
Synthetic C.D.O.’s, in other words, are exemplars of a type of modern financial engineering known as derivatives. Essentially, derivatives are financial instruments that can be used to limit risk; their value is “derived” from underlying assets like mortgages, stocks, bonds or commodities. Stock futures, for example, are a common and relatively simple derivative.
Among the more complex derivatives, however, are the mortgage-related variety. They involve a cornucopia of exotic, jumbo-size contracts ultimately linked to real-world loans and debts. So as the housing market went sour, and borrowers defaulted on their mortgages, these contracts collapsed, too, amplifying the meltdown.
The synthetic C.D.O. grew out of a structure that an elite team of J. P. Morgan bankers invented in 1997. Their goal was to reduce the risk that Morgan would lose money when it made loans to top-tier corporate borrowers like I.B.M., General Electric and Procter & Gamble.
Regular C.D.O.’s contain hundreds or thousands of actual loans or bonds. Synthetics, on the other hand, replace those physical bonds with a computer-generated group of credit-default swaps. Synthetics could be slapped together faster, and they generated fatter fees than regular C.D.O.’s, making them especially attractive to Wall Street.
Michael A. J. Farrell is chief executive of Annaly Capital Management, a real estate investment trust that manages mortgage assets. A unit of his company has liquidated billions of dollars in collateralized debt obligations for clients, and he believes that derivatives have magnified the pain of the financial collapse.
“We have auctioned billions in credit-default swap positions in our C.D.O. liquidation business,” Mr. Farrell said, “and what we have learned is that the carnage we are witnessing now would have been much more contained, to use that overworked word, without credit-default swaps.”
The bankers who invented the synthetics for J. P. Morgan say they kept only the highest-quality and most bulletproof portions of their product in-house, known as the super senior slice. They quickly sold anything riskier to firms that were willing to take on the dangers of ownership in exchange for fatter fees.
“In 1997 and 1998, when we invented super senior risk, we spent a lot of time examining how much is too much to have on our books,” said Blythe Masters, who was on the small team that invented the synthetic C.D.O. and is now head of commodities at JPMorgan Chase. “We would warehouse risk for a period of time, but we were always focused on developing a market for whatever we did. The idea was we were financial intermediaries. We weren’t in the investment business.”
For years, the product that Ms. Masters and her colleagues invented remained just a mechanism for offloading risk in high-grade corporate lending. But as often occurs with Wall Street alchemy, a good idea started to be misused — and a product initially devised to insulate against risk soon morphed into a device that actually concentrated dangers.
This shift began in 2002, when low interest rates pushed investors to seek higher returns.
“Investors said, ‘I don’t want to be in equities anymore and I’m not getting any return in my bond positions,’ ” said William T. Winters, co-chief executive of JPMorgan’s investment bank and a colleague of Ms. Masters on the team that invented the first synthetic. “Two things happened. They took more and more leverage, and they reached for riskier asset classes. Give me yield, give me leverage, give me return.”
A few years ago, of course, some of the biggest returns were being harvested in the riskier reaches of the mortgage market. As C.D.O.’s and other forms of bundled mortgages were pooled nationwide, banks, investors and rating agencies all claimed that the risk of owning such packages was softened because of the broad diversity of loans in each pool.
In other words, a few lemons couldn’t drag down the value of the whole package.
But the risk was beneath the surface. By 2005, with the home lending mania in full swing, the amount of C.D.O.’s holding opaque and risky mortgage assets far exceeded C.D.O.’s composed of blue-chip corporate loans. And inside even more abstract synthetic C.D.O.’s, the risk was harder to parse and much easier to overlook.
Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago, describes synthetic C.D.O.’s as a fanciful structure “sort of like a unicorn born out of the imagination.”
More important, she said, is that the products allowed dicier assets to be passed off as higher-quality goods, giving banks and investors who traded them a false sense of security.
“A lot of deals were doomed from the start,” Ms. Tavakoli said.
BY 2005, Merrill was in a full-on race to become the biggest mortgage player on Wall Street. A latecomer to the arena, it especially envied Lehman Brothers for the lush mortgage profits that it was already hauling in, former Merrill executives say.
Lehman had also built a mortgage assembly line that Merrill wanted to emulate. Lehman made money every step of the way: by originating mortgage loans, administering the paperwork surrounding them, and packaging them into C.D.O.’s that could be sold to investors.
Eager to build its own money machine, Merrill went on a buying spree. From January 2005 to January 2007, it made 12 major purchases of residential or commercial mortgage-related companies or assets. It bought commercial properties in South Korea, Germany and Britain, a loan servicing operation in Italy and a mortgage lender in Britain. The biggest acquisition was First Franklin, a domestic subprime lender.
The firm’s goal, according to people who met with Merrill executives about possible deals, was to generate in-house mortgages that it could package into C.D.O.’s. This allowed Merrill to avoid relying entirely on other companies for mortgages.
That approach seemed to be common sense, but it was never clear how well Merrill’s management understood the risks in the mortgage business.
Mr. O’Neal declined to comment for this article. But John Kanas, the founder and former chief executive of North Fork Bancorp, recalls the many hours he spent talking with Mr. O’Neal, Mr. Fakahany and other Merrill executives about a possible merger in 2005.
“We spent a great deal of time with Stan and the entire management team at Merrill trying to learn their business and trying to explain our business to them,” Mr. Kanas said. “Unfortunately, in the end we were put off by the fact that we couldn’t get comfortable with their risk profile and we couldn’t get past the fact that we thought there was a distinct possibility that they didn’t understand fully their own risk profile.”
Mr. Kanas, who later sold his bank to the Capital One Financial Corporation, had many meetings with Mr. Fakahany, who was responsible for the firm’s credit and market risk management as well as its corporate governance and internal controls. Former executives say Mr. Fakahany had weakened Merrill’s risk management unit by removing longstanding employees who “walked the floor,” talking with traders and other workers to figure out what kinds of risks the firm was taking on.
Former Merrill executives say that the people chosen to replace those employees were loyal to Mr. O’Neal and his top lieutenants. That made them more concerned about achieving their superiors’ profit goals, they say, than about monitoring the firm’s risks.
A pivotal figure in the mortgage push was Mr. Semerci, a details-oriented manager whom some former employees described as intimidating. He joined Merrill in 1992 as a financial consultant in Geneva.
After that, he became a fixed-income sales representative for the firm’s London unit. He later rose quickly through Merrill’s ranks, ultimately overseeing a broad division: fixed income, currencies and commodities.
Always carrying a notebook with his operations’ daily profit-and-loss statements, Mr. Semerci would chastise traders and other moneymakers who told risk management officials exactly what they were doing, a former senior Merrill executive said.
“There was no dissent,” said the former executive, who requested anonymity to maintain relationships on Wall Street. “So information never really traveled.”
Beyond assembling its own mortgage machine and failing to police risks so it could book fatter profits, Merrill also dove into the C.D.O. market — primarily synthetics.
Unlike the C.D.O. pioneers at J. P. Morgan who saw themselves as financial designers and intermediaries wary of the dangers of holding on to their products too long, Merrill seemed unafraid to stockpile C.D.O.’s to reap more fees.
Although Merrill had a scant presence in the C.D.O. market in 2002, four years later it was the world’s biggest underwriter of the products.
The risk in Merrill’s business model became viral after A.I.G. stopped insuring the highest-quality portions of the firm’s C.D.O.’s against default.
For years, Merrill had paid A.I.G. to insure its C.D.O. stakes to limit potential damage from defaults. But at the end of 2005, A.I.G. suddenly said it had had enough, citing concerns about overly aggressive home lending. Merrill couldn’t find an adequate replacement to insure itself. Rather than slow down, however, Merrill’s C.D.O. factory continued to hum and the firm’s unhedged mortgage bets grew, its filings show.
The number of mortgage-related C.D.O.’s being produced across Wall Street was staggering, and all of that activity represented a gamble that mortgages underwritten during the most manic lending boom ever would pay off.
In 2005, firms issued $178 billion in mortgage and other asset-backed C.D.O.’s, compared with just $4 billion worth of C.D.O.’s that used safer, high-grade corporate bonds as collateral. In 2006, issuance of mortgage and asset-backed C.D.O.’s totaled $316 billion, versus $40 billion backed by corporate bonds.
Firms underwriting the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold. So the fees generated on the $316 billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006 alone, for example, would have been about $1.3 billion to $8 billion.
Merrill, the biggest player in the C.D.O. game, appeared to be a cash register. After its banner year in 2006, it produced another earnings record in the first quarter of 2007, finally beating three rivals, Lehman, Goldman Sachs and Bear Stearns, in profit growth.
But as 2007 progressed, the mortgage business began to fall apart — and the impact was brutal. As mortgages started to fail, the debt ratings on C.D.O.’s were cut; anyone left holding the products was locked in a downward spiral because no one wanted to buy something that was collapsing. Among the biggest victims was Merrill.
In October 2007, the firm shocked investors when it announced a $7.9 billion write-down related to its exposure to mortgage C.D.O.’s, resulting in a $2.3 billion loss, the largest in the firm’s history. Mr. Semerci was forced out, later landing at a London-based hedge fund, the Duet Group.
Merrill’s board also ousted Mr. O’Neal. On top of the $70 million in compensation he was awarded during his four-year tenure as chief executive, Mr. O’Neal departed with an exit package worth $161 million.
JOHN A. THAIN, a former Goldman Sachs executive who was also head of the New York Stock Exchange, was hired as Merrill’s chief executive to try to clean up Mr. O’Neal’s mess. But multibillion-dollar losses kept piling up, and Merrill was hard pressed to raise enough to replenish its coffers.
“None of the trading businesses should be taking risks, either single positions or single trades, that wipe out the entire year’s earnings of their own business,” Mr. Thain said in January. “And they certainly shouldn’t take a risk to wipe out the earnings of the entire firm.”
A month later, Mr. Fakahany left Merrill. Upon his departure, in a statement that Merrill issued, he said: “I leave knowing that the firm’s financial condition is significantly enhanced and the new team is in place and moving forward.”
Mr. Fakahany continued to receive a Merrill salary until the end of this summer; he does not appear to have received an exit package.
Mr. Thain, meanwhile, sold off assets for whatever price he could get to try to salvage the firm. In August, he arranged a sale of $31 billion of Merrill’s C.D.O.’s to an investment firm for 22 cents on the dollar. For the first nine months of this year, Merrill recorded net losses of $14.7 billion on its C.D.O.’s. Through October, some $260 billion of asset-backed C.D.O.’s have started to default.
As the depth of Merrill’s problems emerged, its shares plummeted. With Lehman on the verge of collapse, Wall Street began to wonder if Merrill would be next.
Some banks were so concerned that they considered stopping trading with Merrill if Lehman went under, according to participants in the Federal Reserve’s weekend meetings on Sept. 13 and 14.
The following Monday, Merrill — torn apart by its C.D.O. venture — was taken over by Bank of America.
Wednesday, November 05, 2008
Eat and Tell By DONALD G. McNEIL Jr.
November 5, 2008
Eat and Tell By DONALD G. McNEIL Jr.
YOU too can be a restaurant critic. And not just an anonymous Zagateer, dutifully filling in forms. You can have fans. You can get the glory of personal thanks from chefs you’ve deified, or the smug satisfaction of hate mail from those you’ve savaged. You can hobnob with sous-chefs at food events. If your soul is for sale, you can cadge free drinks or meals.
As a bonus, you might even get a sex life — and if so inclined, you can discuss it in detail, online, with fellow foodies.
Where, oh where, you ask, is this magic matchbook cover? How do I apply for this once-in-a-lifetime offer?
It’s simple. Just sign up at Yelp.com and review away.
O.K., so maybe you’re not in the most erudite company — a lot of the reviews are of the “OMG, it was total choco-gasm!” variety. Not every chef appreciates diners who yank out pocket cameras when the amuse-bouches arrive and leave “You’ve been yelped” cards with the check. And Thomas Keller, maestro of Per Se in New York and the French Laundry in California, swears he has never heard of Yelpers.
But with 4 million reviews written and 15 million visitors a month, Yelp is a growing force in the food-obsessed corners of the Web, where life is all profiteroles and beer. According to Web traffic counters like Alexa, Nielsen Online and Google Analytics, Yelp is growing much faster than its closest rival, Citysearch, and has either surpassed it in page views or is on the verge of doing so. Both have many times more visitors than Insider Pages, Zagat, OpenTable, Chowhound or other restaurant sites.
“It’s an exciting new channel for us to harvest,” said Liz Johannesen, marketing director for Kimpton, a national chain of boutique hotels and restaurants. “We went from disbelief to suspicion to fully embracing it.”
Some restaurateurs still dismiss Yelpers as a fork-waving mob of know-nothings. Paul Kahan, the chef and an owner of Blackbird, Avec and the Publican in Chicago, became known there for complaining that sites like Yelp were “a forum for people who don’t necessarily know what they’re talking about.”
But, he conceded in an interview, the sheer volume of amateur opinion is useful. Any reader who struggled through 20 to 30 Yelp reviews of one of his restaurants, he said, “would get a fair impression of it.”
The critical masses are open to anyone. You don’t have to eat in the fanciest restaurants. You don’t need a Culinary Institute of America degree to prove your kitchen cred. You needn’t be a dismissive snob. You don’t even have to have a terribly discerning palate.
But it does help to have a winning personality, some appealing personal snapshots and a flair for writing. Fellow Yelpers vote for their favorite critics and the coveted Review of the Day.
Or, in Yelp-speak: “Kudos on your ROTD, dude! Want to go DYL tonight?” (That would be “destroy your liver,” an invitation to imbibe.)
Within Yelp dwell the Yelp Elite, who write often enough and cleverly enough to tickle the algorithms at headquarters into singling them out for promotion.
For example, Megan Cress — known online as Megan C. of New York — has been Yelp Elite for three years running. She has written more than 300 restaurant reviews (95 of them “firsts,” posted before anyone else). She has 957 friends and 151 fans on the site.
(By contrast, a New York Times restaurant critic might take six years to amass 300 reviews. The critic visits a restaurant several times, strives for anonymity and tries to sample every dish on the menu. Whether he or she has any friends is not recorded.)
Ms. Cress “networks for a living,” she said, introducing people and companies for a finder’s fee. Yelping helps; people who like her reviews often send her e-mail messages, and she decides whether answering them would be useful or fun.
There’s a sexy wink to many of her write-ups, which include her own “date rating” and “pickup scale.” She recently reviewed the Navy mess in the White House, as the guest of a friend who works in the West Wing, she said. She pronounced it “deeeelish” and tried a quick flirt with the Secret Service.
Yelp does not disclose exactly how one attains Elite status, but it’s clearly not all about seriousness of purpose.
A year ago, after meeting him at a bar, Ms. Cress introduced Stephen Crocker, executive sous-chef at the Peninsula New York hotel, to Yelping. Stephen C., by contrast, has not attained Elite status: because he wants to be taken seriously, he writes fewer but longer reviews, concentrating on presentation and price.
“It’s a great place to catalog and share your thoughts,” he said.
Although its initial focus was on restaurants, Yelp now accepts reviews on virtually anything with an address: doctors, shoe stores, doggie salons, even Broadway shows. Ms. Cress gained early Yelp notoriety by reviewing the plastic surgeon who enlarged her breasts and posting a picture of her torso in a bikini. “He told me he made thousands in referrals from that,” she said.
Because the company started in San Francisco, it is not uncommon for a restaurant there to have 300 reviews. In New York most have fewer. Le Bernardin, for example, had just over 100 reviews as of this writing. And the L train — yes, the subway line — had 39, which is probably an indication of how many Yelpers are young and live in Williamsburg, Brooklyn.
Nationally, the company says, 81 percent of Yelpers are under age 40, which may help explain why every pizzeria in town gets notices and why reviewers of the priciest restaurants often explain how they afforded them. Caroline W. went to Per Se because her friend had a new boyfriend who wanted to impress them both. (He was “criminally wrong for her” but they loved the food.) Elton L. thanked his corporate expense account. Manda Bear B. said, wistfully, that she was taken by her ex (“a keeper and a bachelor in NYC :-) Sigh”) to celebrate six years since they met.
Others review expensive restaurants by the tidbit method. Jeffrey Chin, a 33-year-old bank computer consultant known as Jeff C., goes to charity tasting events at which many restaurants offer mini-versions of signature dishes. He has a bite of each and thus reviews up to 25 restaurants a night. That builds his numbers and helps him decide whether he wants to spring for a full meal.
Yelp doesn’t mind. Some of its “firsts” are by grabby members who pass a restaurant that is about to open and write something like “Can’t wait to go here.”
More than one Elite member described Yelping as addictive.
“You get so much positive reinforcement,” said Rebecca Shansky, who has a doctorate in neurobiology and works in a Mount Sinai Hospital lab but whose online persona, Becca S., is a babe who hangs out in cocktail lounges. “People tell you you’re cool, you’re funny, you’re a good writer.”
“It’s kind of like a cult, except instead of Kool-Aid we drink alcohol,” said Su Kim, of Laurel, Md., who is known as the Washington area’s “Primemeatiser” because he holds carnivore-only events.
He started a talk thread with the words, “You know you’re addicted to Yelp when ... ” The answers included: “ ... when you go to a restaurant for the sole purpose of adding to your review count, not because you’re hungry,” “ ... when you hate going abroad because you can’t Yelp about all your wonderful finds” and “... when you’re dining with non-Yelper friends and they ask, ‘Are you Yelping this in your head?’ ”
For some, the allure is in meeting people. Yelp sponsors monthly Elite-only events at which restaurants, distillers and vintners offer free samples to build a reputation. (Joncarl Lachman, a Chicago chef and restaurateur, called Yelp “word of mouth on steroids.”)
Independently, Yelpers agree online to meet at restaurants, go on DYLing pub crawls and so on.
Lauren Smith, a student at the Fashion Institute of Technology, said she arrived in New York two years ago from Hayward, Calif., knowing almost no one. A friend introduced her to Yelp, she wrote 11 reviews in one night, got instant praise, liked it, and saw an open invitation to meet others at a bar that afternoon to play party games. Now all of her local friends are Yelpers, she said.
Yelp does care about identity. Elite members must use their real first name, last initial and photo. Some go further, piling on the poses, and adding shots of pets, lovers and favorite dishes.
As a reviewer, it makes you real; as a networker, it’s a come-on. Anyone can e-mail you without learning your real address.
“If you don’t have pictures and a few reviews, people don’t trust you,” said Nina Cheung, 30, who has been Elite for three years. “You have to be there to review, not just to hook up.”
The downside is that semianonymity can be breached. When Ms. Smith returned to Artichoke Basille’s Pizza the day after reviewing it, the counterman she had described as “my Italian cutie with a flirtatious smile” shouted: “You write for Yelp, don’t you? You’re Lauren S.!”
“If I was white,” Ms. Smith, who is black, wrote in her review update, “I think I would have turned as red as the sauce from embarrassment.”
And when Kathleen B. Reynolds, another Elite, returned to her hair salon after mentioning that some of its stylists disappeared midcut, her stylist looked her over and said, “I guess I can’t take any cigarette breaks when I’m with you, hmm?”
As critics, Yelpers have different aspirations. The incredibly prolific Ed Uyeshima, 49, of San Francisco, had 976 Yelp reviews (accompanied by 2,197 photos), and another 1,483 on Amazon .com. That led The San Francisco Examiner to make him its freelance reviewer of events for tourists. His thoughtful reviews are written on nights and weekends because his days are spent marketing financial services.
“And I do have time to do other things, I swear,” he said.
Ms. Cheung — Nina C. — works as a secretary. Because she was one of New York’s first Yelpers, she has 119 “firsts,” but no desire to turn pro.
“I think my writing style’s kind of juvenile,” she admitted.
Mr. Uyeshima said he found Yelp a friendly milieu. On Amazon, he said, he is attacked by readers who dislike his book reviews, particularly if they disagree politically. On Yelp, you can’t vote a review “not helpful” but you can click “send a compliment.”
“That’s an interesting nuance,” he said. “You can breed a lot of hostility on a site, but Yelp doesn’t encourage negativity.”
People in the wider food business are deeply divided about Yelpers.
Sites with higher gastronomic pretensions like Eater, Grub Street or Serious Eats tend to be dismissive. A particular complaint is that, unlike anonymous posters, Yelpers can be e-mailed after a review and offered free food or drink. Several Elites said they or friends had had such offers, but argued that it was rare and, in any case, they would not change what they wrote.
Another fear is fake reviews posted by a chef’s friends or enemies.
But Ms. Johannesen, of the Kimpton chain, said she thought those were easy to spot: any author with a sketchy profile and few posts was suspect.
Jeremy Stoppelman, Yelp’s founder, said a business could also flag a suspect negative review and ask the company to look at it. When Yelp caught a circle of San Francisco businesses writing five-star reviews for one another this summer, “we purged them from the system,” he said.
Another criticism is that Yelp solicits restaurant “sponsorships.” For a fee, a restaurant can keep one favorable review, marked “sponsor,” at the top of the list. Mr. Stoppelman emphatically denied that unfavorable reviews were reordered or removed for sponsors, unless they were clearly fakes.
The Fifth Floor restaurant in San Francisco, which has one Michelin star, pays Yelp $300 a month for such a sponsorship, said Todd Stillman, its general manager. On the day he said that, Fifth Floor’s top two Yelp reviews, including the sponsored one, were raves. But three others in the top 10 were pans.
Mr. Stillman shrugged it off and said he had used bad reviews to correct staff or kitchen problems, or had e-mailed the reviewer with an explanation. “Feedback is good when you’re in the customer satisfaction business,” he said. “If you don’t evolve in this marketplace, you go extinct.”
Eat and Tell By DONALD G. McNEIL Jr.
YOU too can be a restaurant critic. And not just an anonymous Zagateer, dutifully filling in forms. You can have fans. You can get the glory of personal thanks from chefs you’ve deified, or the smug satisfaction of hate mail from those you’ve savaged. You can hobnob with sous-chefs at food events. If your soul is for sale, you can cadge free drinks or meals.
As a bonus, you might even get a sex life — and if so inclined, you can discuss it in detail, online, with fellow foodies.
Where, oh where, you ask, is this magic matchbook cover? How do I apply for this once-in-a-lifetime offer?
It’s simple. Just sign up at Yelp.com and review away.
O.K., so maybe you’re not in the most erudite company — a lot of the reviews are of the “OMG, it was total choco-gasm!” variety. Not every chef appreciates diners who yank out pocket cameras when the amuse-bouches arrive and leave “You’ve been yelped” cards with the check. And Thomas Keller, maestro of Per Se in New York and the French Laundry in California, swears he has never heard of Yelpers.
But with 4 million reviews written and 15 million visitors a month, Yelp is a growing force in the food-obsessed corners of the Web, where life is all profiteroles and beer. According to Web traffic counters like Alexa, Nielsen Online and Google Analytics, Yelp is growing much faster than its closest rival, Citysearch, and has either surpassed it in page views or is on the verge of doing so. Both have many times more visitors than Insider Pages, Zagat, OpenTable, Chowhound or other restaurant sites.
“It’s an exciting new channel for us to harvest,” said Liz Johannesen, marketing director for Kimpton, a national chain of boutique hotels and restaurants. “We went from disbelief to suspicion to fully embracing it.”
Some restaurateurs still dismiss Yelpers as a fork-waving mob of know-nothings. Paul Kahan, the chef and an owner of Blackbird, Avec and the Publican in Chicago, became known there for complaining that sites like Yelp were “a forum for people who don’t necessarily know what they’re talking about.”
But, he conceded in an interview, the sheer volume of amateur opinion is useful. Any reader who struggled through 20 to 30 Yelp reviews of one of his restaurants, he said, “would get a fair impression of it.”
The critical masses are open to anyone. You don’t have to eat in the fanciest restaurants. You don’t need a Culinary Institute of America degree to prove your kitchen cred. You needn’t be a dismissive snob. You don’t even have to have a terribly discerning palate.
But it does help to have a winning personality, some appealing personal snapshots and a flair for writing. Fellow Yelpers vote for their favorite critics and the coveted Review of the Day.
Or, in Yelp-speak: “Kudos on your ROTD, dude! Want to go DYL tonight?” (That would be “destroy your liver,” an invitation to imbibe.)
Within Yelp dwell the Yelp Elite, who write often enough and cleverly enough to tickle the algorithms at headquarters into singling them out for promotion.
For example, Megan Cress — known online as Megan C. of New York — has been Yelp Elite for three years running. She has written more than 300 restaurant reviews (95 of them “firsts,” posted before anyone else). She has 957 friends and 151 fans on the site.
(By contrast, a New York Times restaurant critic might take six years to amass 300 reviews. The critic visits a restaurant several times, strives for anonymity and tries to sample every dish on the menu. Whether he or she has any friends is not recorded.)
Ms. Cress “networks for a living,” she said, introducing people and companies for a finder’s fee. Yelping helps; people who like her reviews often send her e-mail messages, and she decides whether answering them would be useful or fun.
There’s a sexy wink to many of her write-ups, which include her own “date rating” and “pickup scale.” She recently reviewed the Navy mess in the White House, as the guest of a friend who works in the West Wing, she said. She pronounced it “deeeelish” and tried a quick flirt with the Secret Service.
Yelp does not disclose exactly how one attains Elite status, but it’s clearly not all about seriousness of purpose.
A year ago, after meeting him at a bar, Ms. Cress introduced Stephen Crocker, executive sous-chef at the Peninsula New York hotel, to Yelping. Stephen C., by contrast, has not attained Elite status: because he wants to be taken seriously, he writes fewer but longer reviews, concentrating on presentation and price.
“It’s a great place to catalog and share your thoughts,” he said.
Although its initial focus was on restaurants, Yelp now accepts reviews on virtually anything with an address: doctors, shoe stores, doggie salons, even Broadway shows. Ms. Cress gained early Yelp notoriety by reviewing the plastic surgeon who enlarged her breasts and posting a picture of her torso in a bikini. “He told me he made thousands in referrals from that,” she said.
Because the company started in San Francisco, it is not uncommon for a restaurant there to have 300 reviews. In New York most have fewer. Le Bernardin, for example, had just over 100 reviews as of this writing. And the L train — yes, the subway line — had 39, which is probably an indication of how many Yelpers are young and live in Williamsburg, Brooklyn.
Nationally, the company says, 81 percent of Yelpers are under age 40, which may help explain why every pizzeria in town gets notices and why reviewers of the priciest restaurants often explain how they afforded them. Caroline W. went to Per Se because her friend had a new boyfriend who wanted to impress them both. (He was “criminally wrong for her” but they loved the food.) Elton L. thanked his corporate expense account. Manda Bear B. said, wistfully, that she was taken by her ex (“a keeper and a bachelor in NYC :-) Sigh”) to celebrate six years since they met.
Others review expensive restaurants by the tidbit method. Jeffrey Chin, a 33-year-old bank computer consultant known as Jeff C., goes to charity tasting events at which many restaurants offer mini-versions of signature dishes. He has a bite of each and thus reviews up to 25 restaurants a night. That builds his numbers and helps him decide whether he wants to spring for a full meal.
Yelp doesn’t mind. Some of its “firsts” are by grabby members who pass a restaurant that is about to open and write something like “Can’t wait to go here.”
More than one Elite member described Yelping as addictive.
“You get so much positive reinforcement,” said Rebecca Shansky, who has a doctorate in neurobiology and works in a Mount Sinai Hospital lab but whose online persona, Becca S., is a babe who hangs out in cocktail lounges. “People tell you you’re cool, you’re funny, you’re a good writer.”
“It’s kind of like a cult, except instead of Kool-Aid we drink alcohol,” said Su Kim, of Laurel, Md., who is known as the Washington area’s “Primemeatiser” because he holds carnivore-only events.
He started a talk thread with the words, “You know you’re addicted to Yelp when ... ” The answers included: “ ... when you go to a restaurant for the sole purpose of adding to your review count, not because you’re hungry,” “ ... when you hate going abroad because you can’t Yelp about all your wonderful finds” and “... when you’re dining with non-Yelper friends and they ask, ‘Are you Yelping this in your head?’ ”
For some, the allure is in meeting people. Yelp sponsors monthly Elite-only events at which restaurants, distillers and vintners offer free samples to build a reputation. (Joncarl Lachman, a Chicago chef and restaurateur, called Yelp “word of mouth on steroids.”)
Independently, Yelpers agree online to meet at restaurants, go on DYLing pub crawls and so on.
Lauren Smith, a student at the Fashion Institute of Technology, said she arrived in New York two years ago from Hayward, Calif., knowing almost no one. A friend introduced her to Yelp, she wrote 11 reviews in one night, got instant praise, liked it, and saw an open invitation to meet others at a bar that afternoon to play party games. Now all of her local friends are Yelpers, she said.
Yelp does care about identity. Elite members must use their real first name, last initial and photo. Some go further, piling on the poses, and adding shots of pets, lovers and favorite dishes.
As a reviewer, it makes you real; as a networker, it’s a come-on. Anyone can e-mail you without learning your real address.
“If you don’t have pictures and a few reviews, people don’t trust you,” said Nina Cheung, 30, who has been Elite for three years. “You have to be there to review, not just to hook up.”
The downside is that semianonymity can be breached. When Ms. Smith returned to Artichoke Basille’s Pizza the day after reviewing it, the counterman she had described as “my Italian cutie with a flirtatious smile” shouted: “You write for Yelp, don’t you? You’re Lauren S.!”
“If I was white,” Ms. Smith, who is black, wrote in her review update, “I think I would have turned as red as the sauce from embarrassment.”
And when Kathleen B. Reynolds, another Elite, returned to her hair salon after mentioning that some of its stylists disappeared midcut, her stylist looked her over and said, “I guess I can’t take any cigarette breaks when I’m with you, hmm?”
As critics, Yelpers have different aspirations. The incredibly prolific Ed Uyeshima, 49, of San Francisco, had 976 Yelp reviews (accompanied by 2,197 photos), and another 1,483 on Amazon .com. That led The San Francisco Examiner to make him its freelance reviewer of events for tourists. His thoughtful reviews are written on nights and weekends because his days are spent marketing financial services.
“And I do have time to do other things, I swear,” he said.
Ms. Cheung — Nina C. — works as a secretary. Because she was one of New York’s first Yelpers, she has 119 “firsts,” but no desire to turn pro.
“I think my writing style’s kind of juvenile,” she admitted.
Mr. Uyeshima said he found Yelp a friendly milieu. On Amazon, he said, he is attacked by readers who dislike his book reviews, particularly if they disagree politically. On Yelp, you can’t vote a review “not helpful” but you can click “send a compliment.”
“That’s an interesting nuance,” he said. “You can breed a lot of hostility on a site, but Yelp doesn’t encourage negativity.”
People in the wider food business are deeply divided about Yelpers.
Sites with higher gastronomic pretensions like Eater, Grub Street or Serious Eats tend to be dismissive. A particular complaint is that, unlike anonymous posters, Yelpers can be e-mailed after a review and offered free food or drink. Several Elites said they or friends had had such offers, but argued that it was rare and, in any case, they would not change what they wrote.
Another fear is fake reviews posted by a chef’s friends or enemies.
But Ms. Johannesen, of the Kimpton chain, said she thought those were easy to spot: any author with a sketchy profile and few posts was suspect.
Jeremy Stoppelman, Yelp’s founder, said a business could also flag a suspect negative review and ask the company to look at it. When Yelp caught a circle of San Francisco businesses writing five-star reviews for one another this summer, “we purged them from the system,” he said.
Another criticism is that Yelp solicits restaurant “sponsorships.” For a fee, a restaurant can keep one favorable review, marked “sponsor,” at the top of the list. Mr. Stoppelman emphatically denied that unfavorable reviews were reordered or removed for sponsors, unless they were clearly fakes.
The Fifth Floor restaurant in San Francisco, which has one Michelin star, pays Yelp $300 a month for such a sponsorship, said Todd Stillman, its general manager. On the day he said that, Fifth Floor’s top two Yelp reviews, including the sponsored one, were raves. But three others in the top 10 were pans.
Mr. Stillman shrugged it off and said he had used bad reviews to correct staff or kitchen problems, or had e-mailed the reviewer with an explanation. “Feedback is good when you’re in the customer satisfaction business,” he said. “If you don’t evolve in this marketplace, you go extinct.”
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