Felix Salmon

Many thanks to Amy King at Artnet, who put this league table together for me, showing the artists who have grossed the most money at auction before their 30th birthday. (Technically, it’s total auction revenue up to and including the full year in which they turn 30.)

In first place, and vastly ahead of anybody else, is Jean-Michel Basquiat, who of course died in 1988 at the age of 27. The overwhelming majority of his $16.6 million was posthumous: $15.3 million came in 1989 and 1990. And dying young is not a career strategy I’d necessarily recommend to any artist.

Basquiat aside, there’s an impressively Asian tinge to this list, with 5 of the other 9 artists coming from China, Korea, or Japan. Notably, the appositely-named Choi So Young saw more than $2 million of her work sold at auction before she was 30 — an achievement which, historically, neither female artists nor Korean artists would ever dream of.

This does not mean that Asian artists have more success at a younger age than their US and European counterparts; it probably just means that hot young US and European artists have galleries which are better at keeping close tabs on their work and preventing it from coming up for auction. But still, it’s a glimpse at just how incredibly successful young artists can be, these days.

I was hoping someone would do this — and now The Daily Stag Hunt has come to the rescue. All I can say is, thank you. It turns out that if you’re on the FOMC, then being in a credit bubble is really funny!

(h/t Elfenbein)

The wheels of justice grind slowly — it’s well over a year since Jeff Horwitz’s stunning report on the force-placed insurance scandal, and only now does it seem like the other shoe might be beginning to drop, with the enormous monetary settlements that probably implies.

In his latest update, Horwitz fills us in on what’s going on: there’s not only a big investigation by New York State’s Department of Financial Services, but there’s also a separate investigation by the broad coalition of state attorneys general, as part of the mortgage-servicing settlement which never seems to get anywhere. On top of that, the Consumer Financial Protection Bureau might be getting involved as well.

And then there’s private litigation, led by a four-firm, ten-lawyer class action effort in Florida. As Horwitz writes, it’s too early to know how all these suits will turn out, but what precedent we have is not looking good for the banks:

The suits are generally in their early stages. But the only one to have advanced past class certification, Hofstetter v. Chase Home Finance LLC, suggests serious trouble for banks.

In depositions made public following the defense’s failure to properly request confidentiality from the court, Chase employees described a system in which Chase collects hefty commissions on force-placed insurance — yet does no work in relation to the policies.

“What function does Chase Insurance Agency, Inc. perform with respect to flood insurance?” the plaintiffs’ attorney asked in a deposition.

“I would say no function,” Chase’s employee responded…

One Chase employee testified that, despite Chase Insurance Agency Inc.’s name, the division employs absolutely no insurance agents.

Chase settled that one case for an eight-figure sum; there will certainly be more where that came from. I only wonder whether the banks might not be hoping that a big umbrella deal with the state attorneys general might give them some kind of immunity against these class actions.

In many ways, the banks don’t want to settle: they’d rather fight, and keep their money while doing so, even if fighting ends up costing them more over the long term. Better to push off losses onto your successor than be responsible for them yourself. And probably the expected losses on class actions related to force-placed insurance won’t make the difference between the banks making or rejecting any proposed offer. But Horwitz’s story is an important reminder that banks’ contingent litigation liabilities are enormous, and largely unknown. Which is one reason, surely, why they’re all trading at such low ratios these days.

Adam Lashinsky, in an excerpt from his new book, says that Apple employees aren’t paid particularly well:

If they don’t join for a good time, they also don’t join Apple for the money. Sure, Apple has spawned its share of stock-options millionaires — particularly those who had the good timing to join in the first five or so years after Jobs returned. “You can get paid a lot of money at most places here in the Valley,” said Frederick Van Johnson, a former Apple marketing employee. “Money is not the metric.”

By reputation, Apple pays salaries that are competitive with the marketplace — but no better. A senior director might make an annual salary of $200,000, with bonuses in good years amounting to 50% of the base. Talking about money is frowned upon at Apple. “I think working at a company like that, and actually being passionate about making cool things, is cool,” said Johnson, summarizing the ethos. “Sitting in a bar and seeing that 90% of the people there are using devices that your company made — there is something cool about that, and you can’t put a dollar value on it.”

This is interesting — but I think it understates the importance of stock options and restricted stock units. Apple is that rarest of beasts, a fast-growing company with a low stock price. And you don’t need many RSUs at $430 a pop before you’re talking real money. A job offer from Apple is certainly a treasured thing and most people aren’t going to turn it down just because the salary isn’t north of $300,000. But money’s still important and Apple employees have actually been much better paid than Lashinsky implies.

We can do some very basic back-of-the-envelope math here. When Apple went public in 1980, it had 61 million shares outstanding. It has since split three times, so those original 61 million shares have now become 490 million shares. Today, however, Apple, has 929 million shares outstanding. Which means that over the years, Apple has issued 439 million shares.

Where did those shares go? There haven’t been any secondary offerings, so none of them went to investors. And Apple is not particularly acquisitive, so few of them went to buy companies, either. Apple does buy some companies with stock, but those deals are rare and don’t account for all that many shares: even the NeXT acquisition, which brought Steve Jobs back to the fold, was paid for with $429 million in cash and only 1.5 million shares of stock.

So it’s fair to assume that the lion’s share of the newly-issued shares — let’s say 400 million, to keep numbers round — have gone to employees. And 400 million shares, at $430 each, is $172 billion.

To put that in perspective, Apple now has 60,400 employees. 36,000 of those work in the retail segment; we can assume they don’t get options or RSUs. So excluding retail, Apple has about 24,400 employees. Let’s double that number, to include all the employees who have left over the years — call it 50,000 in all. $172 billion divided by 50,000 employees is $3.4 million per employee.

Now I’m not saying that the average Apple employee has made $3.4 million in stock options and RSUs. Most of those options and RSUs will have been exercised, at prices well below $430 per share. (On the other hand, most current employees have options and RSUs which haven’t yet vested and therefore aren’t included in the 929 million number of total outstanding shares.) But the fact is that Apple has been generous in terms of handing out equity to its employees, and there’s no reason to believe it won’t be just as generous going forwards. And the most recent datapoint we have — the 1 million RSUs given to Tim Cook when he became CEO “as a promotion and retention award” — certainly doesn’t make it seem as though Apple is stingy with its equity-based pay.

I’m sure that Apple doesn’t pay more than it needs to and I’m also sure that demand for Apple jobs significantly exceeds the supply of those jobs. But if you properly account for options and RSUs, I suspect that Apple turns out to be a pretty generous employer — more so, in any case, than Lashinsky implies.

Today is a very big day at Goldman Sachs.

It’s bonus season on Wall Street and Goldman’s employees are about to learn their “number,” the annual object of obsession that makes up the bonus portion of their compensation. Depending on the number of zeros attached to that number, Wall Streeters will rejoice, buy big homes or quit in a huff.

In turn, many of us will be instantly disgusted by Wall Street’s pay.

There’s a problem, though, with anger about Wall Streeters’ paychecks: we know almost nothing useful about the way the industry rewards its employees. We know that Wall Street pay is high, and certainly far higher than the median American income, which is a serious problem. A battery of studies have linked Wall Street’s pay practices to skewed incentives, outsized risks and short-termism.

Beyond that, though, talking about Wall Street pay becomes an exercise in gossip.

Here’s a sample of recent reports: Bloomberg, relying on bank sources and pay experts, reports junior bankers won’t see annual guaranteed salary increases this year. The NYT reports executive compensation experts charge $11,000 for an annual report which helps banks determine how much to pay top traders. Andrew Ross Sorkin posited that pay on the Street will actually be higher this year if you compare it to revenue.

But, by far, the most common figure you’ll hear during bonus season is average pay per employee. The WSJ declares: “Average pay at Goldman Sachs: $367,057”. It’s a figure that nearly every news organization bandies about, often without caveats.

Unfortunately, using averages to describe Wall Street pay is a bit like writing about baseball salaries if you included A-Rod in the same data set as peanut vendors. Average Wall Street bonus figures come from compensation set-asides that include support staff and IT workers along with, as the Epicurean Dealmaker points out, workers who generate real revenue.

Then there are the outliers at big banks, whom we know nothing about. Goldman Sachs is about to lose two of the four heads of its largest division, but you’d be hard-pressed to find detailed information on their compensation. Most banks, unfortunately, don’t give headcounts for their various divisions, so getting a sense of pay-per-person in specific bank divisions is usually impossible.

Remember Andrew Hall, the former Citigroup trader whose Phibro unit pulled in 10 percent of the bank’s net income in 2007? (Hall, famously, demanded a $100 million payday in the middle of the financial crisis). You won’t find full information on Hall’s pay in Citi’s U.S. SEC disclosures, even though he was known to out-earn some of the bank’s top executives, including Citi’s CEO; his compensation was first sussed out by the Wall Street Journal.

There’s vital information in these pay practices: We didn’t learn that Joseph Cassano’s pay from AIG peaked at $44 million until the Financial Crisis Inquiry Commission released its findings, some two years after his unit nearly took down the economy.

And we also don’t know how much of Wall Street’s pay is relatively unobjectionable. Investment banking can be, as the Epicurean Dealmaker suggests, about moving relatively safe products that people want:

Business like M&A, where you earn a fee for helping a client buy or sell a company, or security underwriting, where you earn a fee for placing client securities with outside investors, or securities market making, where you earn a spread for standing between buy- and sell-side investors as a middleman and temporary warehouser. None of these businesses entailed any material amount of persistent or hidden financial risk to investment banks: we did the deal, we got paid, and we moved on. There are no meaningful, dangerous “tail” exposures from such activities.

In any given year, we have no real idea how much Wall Street pays for its more socially redeeming functions, compared to how much it pays the Joseph Cassanos of the world.

Even a simple tally of the number of six, seven or eight-figure earners in any big bank, broken down by division, would give us a clearer picture of compensation. And it would be great if banks were forced to reveal how much they paid their highest earners every year, and what divisions those earners worked in. Shareholders and regulators might then form useful observations about risk, talent and reward.

But for now, all we can do is guess about what Wall Street banks really value.

Here’s my infographic on the badges at Davos, put together with the invaluable help of Alex Leo and Juno Lee.

I actually snapped a photo of the white-with-hologram badge — pretty much the top badge you can get at Davos — a couple of years ago, although I didn’t know what it meant at the time. Technically, the purpose of the hologram is to let the Davos security people know who’s allowed into IGWEL meetings. But the real purpose is to make everybody who doesn’t have a hologram feel a little bit left out.

Wonderfully, in his piece on why he isn’t going to Davos, Mohamed El-Erian calls for even more layers of exclusivity: “To be more productive, and more useful,” he writes, Davos meetings “need to be much less inclusive at some key moments. Very difficult (and highly delicate) decisions have to be made about who to involve in certain meetings and who to exclude. This would require additional (and closely monitored) status levels for participants.”

I can assure Mohamed that the WEF already spends a mind-boggling amount of time making difficult and delicate decisions about who to involve in certain meetings — none more so than IGWEL. And one of the wonders of Davos is the way that every time you go back, you discover a whole new level of secret and exclusive meetings and dinners and get-togethers which you had no idea even existed: the badge-color layers are only the beginning. Maybe Mohamed should actually go, next year. But only if he gets a hologram.

Greek prime minister Lucas Papademos gave an important interview to the NYT on Monday night. Think for a minute about the natural fractiousness of bondholders, and then read this:

Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greece’s unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.

“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” Mr. Papademos said. “It cannot be excluded. It is contingent on the percentage.”

This is a pretty clear message: if the bondholders don’t agree to Greece’s terms, then Greece can simply force them to join the exchange. Greece’s bonds are issued under Greek law, and Greece can change its own domestic law any time it wants.

My guess is that this is exactly what’s going to end up happening. Papademos has two sets of advisors: its bankers, Lazard, and its lawyers, Cleary Gottlieb. Lazard’s Greece team is headed by includes Mark Walker, the former managing partner at Cleary Gottlieb, and Cleary’s Greece team is headed by the dean of sovereign debt advisors, Lee Buchheit. Bondholders, in general, have a lot of experience going up against Walker, Buchheit, and Cleary generally. And whenever that’s happened, the sovereigns have won, and the bondholders have lost. Just ask anybody who held Russian domestic debt in 1998: Russia’s lawyer, back then, was Mark Walker.

Meanwhile, the lead negotiator on the creditor side is the IIF’s Charles Dallara, an amiable buffoon whose main purpose in life is to try to make sure that everybody likes him and thinks that he’s important. When faced with hard-nosed and single-minded Cleary types, he’ll be useless — especially given that the banks have already cut him off at the knees by refusing to let him negotiate on their behalf. He can wave his hands around and agree in principle to a deal, but he can’t actually commit any bondholders to participating. Which means that the “negotiations” are really just an opportunity for Dallara to talk a lot (he likes doing that), and for Greece to flatter him into “agreeing” to whatever it is they’re going to do in any case.

In her interview with Papademos, Rachel Donadio says that “European leaders are set against” the idea that Greece’s credit default swaps should be triggered, on the grounds that it “could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system”. She’s wrong about that: it couldn’t. The only thing a CDS trigger does is make sure that people who bought insurance on a Greek default get paid when Greece defaults. It would mean that the people doing the insuring lose money, of course. But anybody writing an insurance policy has to be willing to pay out on it — especially when you’re insuring a credit as risky as Greece. A CDS trigger would not be catastrophic at all, and there’s really no reason to try to avoid one.

The real negotiations are the ones which are certainly going on behind the scenes, between the troika (the EU, the ECB, and the IMF) and the Greeks. The one thing which Greece needs is for the troika to keep on funding Greece’s deficits. And so it’s the troika — the organizations who are actually providing money, here — which holds all the cards. As in any bankruptcy, if you put up cash, you call the tune.

So the only thing that needs to happen here is for Greece to quietly find out from the troika what kind of bond-restructuring terms would be acceptable to them. Greece then puts those terms into a formal offer, and makes acceptance of that offer effectively compulsory for bondholders. The troika declares a successful bond exchange — because it happened on exactly the terms that they wanted — and continues to lend Greece the money it needs to function as a viable sovereign. Game over, at least for the time being.

Now politically, the EU would very much like to have a bunch of smiling bankers going around saying that they’re happy with the bond exchange, rather than a group of extremely irate creditors who feel railroaded into a dreadful deal. So everybody’s going to try to be as nice to the bankers and Dallara as they possibly can be, to try to get as much good PR for the deal as possible. And maybe, at the margin, the banks can extract some concessions in return for their smiles — perhaps the new bonds will be issued under London law rather than Greek law, for instance.

But the big-picture game plan is clear. Greece is going to default, on March 20, and there’s really nothing the banks can do to stop it. If you’re not willing to accept whatever deal Greece comes up with, you probably shouldn’t be holding Greek bonds at all.

Update: Lazard informs me that its team leader in Greece is Matthieu Pigasse, the head of the bank’s sovereign advisory team, not Mark Walker. They also say he didn’t work on Russia.

Please, Barack, don’t do it! Hans Nichols is reporting today that Larry Summers wants to be the next head of the World Bank — no surprise there — and that Barack Obama is thinking of nominating him. It’s a dreadful idea.

For one thing, Summers wouldn’t actually be very good at the job, since he doesn’t have any of the required qualifications.

The only way to be an effective World Bank president is to be an effective diplomat. Like all CEOs, the head of the Bank reports to a board of directors — but at the World Bank, the board of directors meets twice a week. And they’re not friendly hand-picked board members, either — they’re political appointees who fight their geographical corners, who live full-time in Washington, and who work full-time out of offices within the Bank itself. If you want to get anything done at the Bank, you need to persuade the board to leave you alone and not micromanage every decision you make.

You also need to be an almost superhuman manager. The World Bank has more than 10,000 employees from over 160 countries, with offices in more than 100 countries around the world. The range of cultural expectations they bring to their jobs is truly enormous, and the amount of political jostling and mutual incomprehension which results is entirely predictable. In order to manage this rabble, you need a very high level of cultural and interpersonal sensitivity.

And then there’s leadership: “the vision thing”, as Geoge HW Bush would put it, and the ability to get your organization to line up behind how you think the Bank — and, for that matter, the World — should work. Summers is not known for his work on global poverty reduction, and his previous tenure at the World Bank is remembered mainly for the pollution memo — an “ironic” proposal to increase pollution in poor countries, which resulted in the label “perfectly logical but totally insane” being attached to Summers for many years thereafter.

Summers, of course, lives in a world of ideas and debate — a world in which, it must be said, he invariably and loudly considers his own opinion to be correct. If he became president of the World Bank, it’s only reasonable to expect Cornel West-syle fiascos on a regular basis — with a concomitant steady erosion of the amount of faith the board has in the president.

And even Summers himself is the first to admit that he’s no diplomat: he prides himself on speaking the truth as he sees it. Which is fine if you’re making millions of dollars advising DE Shaw on their investments. But it’s not going to help you run the World Bank — or run anything larger than the Treasury Department, really. Even Harvard was too much for him to run; giving him the World Bank job would be a disaster.

On top of that, giving the job to any American is a bad idea. We’re long past the point at which it makes any sense at all that the president of the World Bank should always be an American, and I was quite heartened, back in 2009, when a trial balloon was floated suggesting that Obama might appoint Lula, or Manmohan Singh, to the job. My own favored candidate would be Ngozi Okonjo-Iweala — she should ideally have got the job back in 2007, but better late than never. And accepting it would give her a gracious way of departing her current gig, which doesn’t seem to be going so well.

Obama is the most multilateral president the US has ever had, and as such it makes perfect sense for him to show a bit of modesty with respect to the World Bank. An American has run it since 1946; it’s about time some other nationality got a chance. (And yes, Jim Wolfensohn counts as an American.) If Obama must appoint an American, it should probably be a Clinton — either Hillary or Bill, with Hillary being the much more likely of the two. But ideally he shouldn’t nominate an American at all. And if he does, it certainly shouldn’t be Summers.

Lucas Graves has by far the best and most sophisticated response to NYT ombudsman Arthur Brisbane’s silly question about “truth vigilantes”.

Graves makes the important point that Brisbane’s “objective and fair” formulation is itself problematic: as one of Brisbane’s commenters wrote, if a certain politician is objectively less truthful, less forthcoming, and less believable than others, then objectivity demands that reporting on what that politician’s saying be truthful — even if that comes across as unfair.

And this just about sums up the entire debate:

Pointing to a column in which Paul Krugman debunked Mitt Romney’s claim that the President travels the globe “apologizing for America,” Brisbane explains that,

As an Op-Ed columnist, Mr Krugman clearly has the freedom to call out what he thinks is a lie. My question for readers is: should news reporters do the same?

To anyone not steeped in the codes and practices of professional journalism, this sounds pretty odd: Testing facts is the province of opinion writers? What happens in the rest of the paper?

Graves’s main insight here, however, is to frame this debate in the context of what AJR has called the “fact-checking explosion” in American journalism — a movement which is roughly as old as the blogosphere, interestingly enough.

And like the blogosphere, the rise of fact-checking raises the obvious question:

It’s easy to declare, as Brook Gladstone did in a 2008 interview with Bill Moyers, that reporters should “Fact check incessantly. Whenever a false assertion is asserted, it has to be corrected in the same paragraph, not in a box of analysis on the side.” (I agree.) But why, exactly, don’t they do that today? Why has fact-checking evolved into a specialized form of journalism relegated to a sidebar or a separate site? Are there any good reasons for it to stay that way?

As I look around the blogosphere today, I see something which is clearly dying — it’s not as healthy or as vibrant as it used to be. But this is in some ways a good thing, since it’s a symptom of bloggish sensibilities making their way into the main news report. As we find more voice and attitude and context and external linking in news stories, the need for blogs decreases. (One reason why the blogosphere never took off in the UK to the same degree that it did in the US is that the UK press was always much bloggier, in this sense, than the US press was.)

With any luck, what’s happening to blogs will also happen to fact-checking. As fact-check columns proliferate and become impossible to ignore, reporters will start incorporating their conclusions in their reporting, and will eventually reach the (shocking!) point at which they habitually start comparing what politicians say with what the truth of the matter actually is. In other words, the greatest triumph of the fact-checking movement will come when it puts itself out of work, because journalists are doing its job for it as a matter of course.

That’s not going to happen any time soon, for reasons of what Graves calls “political risk aversion”. Fact-checking, says Graves, “is a deeply polarizing activity”, and mainstream media organizations have a reflective aversion to being polarizing. It’s certainly very difficult to be polarizing and fair at the same time. But a more honest and more polarizing press would be an improvement on what we’ve got now. And just as external links are slowly making their way out of the blog ghetto and into many news reports, let’s hope that facts make their way out of the fact-check ghetto too. It would certainly make a lot of political journalism much more interesting to read.

The big deadline in Greece is March 20 — that’s when the country has a €14.4 billion bond maturing that it can’t afford to repay. So Greece and its creditors are playing chicken with each other right now. Both want to do a deal, which would involve a cash payment of about 15 cents on the euro being paid out by a rescue committee comprising the EU, the IMF, and the ECB. Existing bondholders would get shepherded into new debt which would be worth less than the old debt but at least would remain current, while Greece would avoid the parade of horribles associated with a “hard default”, with its banks retaining access to funding from the international community in general and the ECB in particular.

The logical outcome, then, is that a deal gets done — probably along the lines that Marathon Asset Management CEO Bruce Richards sketched out to Peter Coy today. Richards’s math is a bit hard to follow:

The new bonds will probably pay annual interest of 4 percent to 5 percent and have a maturity of 20 years to 30 years, Richards said. They may trade for about half of their face value, he predicted. Altogether, the net present value of the deal for the bondholders will be about 32 cents on the euro, he estimated.

This doesn’t add up: if face value is 50 cents on the euro, then half that would be 25 cents; add in 15 cents of cash, and you get a total of 40 cents on the euro, not 32.

Update: OK, I understand how the math works now. The headline 50% haircut includes the 15 cents in cash: it’s 35 cents in bonds plus 15 cents in cash for a total of 50 cents. If you value the 35 cents in bonds at 50 cents on the dollar, then the bonds are worth 17 cents; add that to 15 cents in cash, and you get a total of 32 cents. Note that Greece, in this scenario, is getting a 65% face-value haircut, rather than a 50% haircut, and is getting coupon relief as well — all in all, Greece is swapping bonds it issued at par for new instruments worth 17 cents on the dollar. Which is an 83% NPV haircut. You can see why the market might object to a haircut that big.

But either way, the market is saying that a deal along those lines isn’t going to fly. The March 20 bonds are currently bid at 42, offered at 44, and no one is going to accept a deal worth 32 cents or even 40 cents if you can just sell those bonds outright for 42 cents. And similarly, no one buying the bonds right now at 42 is going to accept any deal at 32.

And it’s much harder to reach a deal now than it was a few months ago, because many of Europe’s biggest banks have quietly sold their holdings of Greek debt to aggressive hedge funds.

Even if a deal is done, remember that the people sitting on the other side of the table are the IIF, the hapless and toothless trade body representing the big banks without really being able to commit them to anything. And if the IIF can’t deliver the banks, it certainly can’t deliver the hedge funds, which are much less susceptible to arm twisting moral suasion.

As a result, we’re not going to see all $14.4 billion of bonds tendered in to any exchange — and there’s an extremely high chance that there will be enough holdouts to trigger Greek CDS contracts. That’s not the end of the world, although many people seem to think it would be; Greece is defaulting, so it stands to reason that default swaps would be triggered.

My expectation is that there will be an exchange; that it won’t be particularly successful; that it will trigger CDS; but that all the same it will be good enough for the EU, which will stump up its €30 billion and keep the can going on its bumpy path down the road. A bunch of hedge funds will be left with a large amount of defaulted Greek debt, and will start all manner of litigation, which will go nowhere for the foreseeable future. And no, there’s no way that Greece will pay those hedge funds just so that it can avoid the CDS being triggered.

Richards will be fine: he’ll tender into the exchange, get the cash and the bonds he’s expecting, and probably sell them at a small profit. Banks who lent to Greece at par will have to take very large losses. And the holdouts will start complaining loudly about the sanctity of contracts to anybody willing to listen, which will be a very small group of people indeed.

Frankly, it’s taken much longer than I thought for the actual default to arrive — seeing as how it was clearly signalled by Greece as long ago as July. That default would have been positively painless compared to this one. But at least we have a date, now. Greece will officially default on March 20. The only question is whether the EU will continue to fund the country after that date. For the sake of the euro zone, we had better all hope the answer is yes.

I had a memorable conversation on Monday with Suze Orman and Kim Bishop, the face and president respectively of the new Approved Card prepaid debit card. I had quite a few questions for them, and they did answer them, even if at times I did feel as though we were speaking at cross purposes.

I started off by asking Orman about an exchange she had last week with Marketplace Money’s Tess Vigeland.

Vigeland: CardHub.com did an analysis of your card versus the Green Dot card as well as the Amex card. And the one knock it did have is that there are so many different fees on your card — 20 versus eight for the Green Dot and only one fee for the Amex card.

Orman: Oh please, girl friend. Don’t tell me that you are that naive. There is no way Amex has just one fee. There is no way Green Dot has just four or five fees. The person that did that article doesn’t even know how to evaluate cards, let alone be good enough to give a determination on it. The reason that they were able to see all the fees that we could potentially charge, if you don’t use the card the way that we tell you, is because by law, you have to have them. And the only difference is we’re showing everybody the fees, we’re being transparent! All those other cards, you do your homework. You try to find their fees, you try to find out how much it’s really gonna cost you, you’re not gonna be able to, because they are hidden deep deep into the site. Are you kidding me? He was an idiot!

It’s worth listening to that answer, rather than just reading it: she spits it out. There is. No. Way. Amex. Has. Just. One. Fee.

Except, there is a way that Amex has just one fee. See for yourself. It’s a reasonably big fee: $2 per ATM withdrawal, with no free ATMs. But it really is the only fee that Amex has — you can delve as deep into the terms and conditions as you like, and you’re not going to find another one.

(There’s one other possible cost associated with the Amex card: if you have cash that you want to put onto your card, and for some reason you can’t deposit the cash into your bank account and transfer it over that way, then you’ll need to buy a MoneyPak, which costs $4.95. That’s the same as the Approved Card charges if you reload at Western Union, and it’s a bit more than the cost of reloading the Approved Card at MoneyGram. But Orman is very keen that you should never reload the card that way, and I don’t think Amex expects many people to reload with MoneyPaks, either.)

Now Orman did make a good point, which is that many of the fees on the Approved Card are for services which Amex doesn’t even offer. The Approved Card is designed to be a credible replacement for a checking account, and so for instance there are fees for things like re-issuing a check when you’re trying to pay a bill for the second time. You can’t do that with the Amex card, which doesn’t offer bill pay at all.

If you’re considering the Approved Card as a checking-account alternative, then, you should be comparing its fees to checking-account fees, rather than to the Amex card’s fees. But, if you already have a checking account and you want to get a prepaid debit card for some reason (maybe you want to use one for your kids’ allowance, for example, so that you can track where they’re spending their money), then it does make sense to compare the Approved Card to the Amex card.

Orman gave an Approved Card to her elderly mother; every time her mother uses it, Orman gets a text message saying where it was used and how much was spent. It’s a useful service — but the fact is that the Amex card also has email alerts, and doesn’t have a monthly charge.

So is the Amex card better than the Approved Card? I’m not sure about that. For one thing, it’s only accepted where American Express cards are accepted, which is a smaller universe of places than the Approved Card, which is a MasterCard. And you’re almost certainly better off with an Approved Card if you’re going to want to get cash out on it. On the other hand, the Approved Card does charge for a bunch of things that you get for free with the Amex card. There’s the fee for being declined at an ATM, for instance, or the fee for talking to a human being on the phone more than once a month. And the Amex card’s freebies (purchase protection, roadside assist, global assist emergency medical help, access to concert presales) are better than the offers on the Approved Card.

The Amex card even has its own, slightly more useful, version of the credit reporting which Orman’s so keen on with the Approved Card. With Orman’s card, your spending activity gets reported to TransUnion, which then will look at two years’ worth of aggregate data, and start thinking about whether there are useful correlations it can find between that data, on the one hand, and your demonstrated creditworthiness, on the other. No one’s promising anything, and nothing’s going to happen in any case until 2014 at the earliest.

With the Amex card, by contrast, the Make Your Move program will graduate you from a prepaid debit card to a fully-fledged charge card in as little as six months. Again, there aren’t any promises. But if you want a credit card and don’t currently qualify for one, the Amex prepaid card is likely to be more helpful to you than the Approved Card.

All of which is a very long way of saying that Orman’s animus towards the Amex card is decidedly misplaced. If you’re in the market for what the Amex card is offering, then it’s a competitive, attractively-priced offering. Orman’s card is not bad, and its fees are not a rip-off. But she has a dog in this fight now, and that means she’s no longer a reliable guide to the maze of personal-finance products out there. It used to be that when Suze Orman was rude about a product, that was because the product in question was a bad one. Now, when Suze Orman is rude about a product, it could just be because that product competes with her product.

And that’s, at heart, my beef with the way that Orman is now talking about checking accounts. She treats them all with extreme prejudice — and I hardly blame her for doing so. Much of the time, they really are evil things, filled with hidden pitfalls for the unaware. But now they’re competitors, too. Both Orman and Bishop were quite open about saying that they would be perfectly happy if someone fed up with checking-account fees closed down that account entirely and moved their life onto the Approved Card.

Orman, for instance, promised that the fees on her card would only ever go down, not up, while saying that thanks to the ever-deteriorating housing market, checking-account fees are going to rise. “The banks are going to be in big trouble,” she told me. “If they get into big trouble, which I know they’re already in, you’re going to see fees on these accounts and you’re never going to know what hit you.”

Orman even tried to persuade me that if you used a checking account to pay your bills, and you paid those bills by writing seven or eight paper checks per month and mailing them in with a first-class stamp, then the cost of postage would be higher than the monthly fee on the Approved Card. That seemed silly to me: if you can set up electronic bill pay on the Approved Card, then you can set it up with your checking account’s online banking, too. But Orman was adamant: you could do that if you wanted, but she wouldn’t advise it. Because even if there aren’t any fees for online bill pay now, your bank will surely start charging those kind of fees sooner or later. “You are going to see fees on every one of these checking accounts that are currently free,” said Orman — which, of course, if true, is a reason to just move over to using an Approved Card instead.

Just like with the Amex card, however, Orman isn’t credible here any more. I’m not saying she’s wrong, but she’s undoubtedly conflicted. And that means she’s no longer a reliable guide to things like the pros and cons of maintaining a checking account — one of the most basic financial decisions that everybody has to make, and one where up until now I would absolutely trust her advice.

Of course, I have my own opinions on financial matters as well. And some things are just completely laughable. Like, for instance, the idea that anybody, ever, should spend $63 per year for an investment newsletter with buy and sell portfolio recommendations which are designed to beat the market. But, that’s exactly what Orman is selling. And, she told me, “that newsletter is fabulous”, adding that it “has been beating the market by a lot”, and that it was “rated number one” by someone or other, and — I have to admit this is where she rendered me utterly speechless — “we issued a buy for an ETF for gold, we are up 5% in that ETF in a week and a half. So you have to look at the returns and judge it on the returns.”

Remember, this is a newsletter giving investment advice for people’s retirement accounts. And here’s Suze, bragging about the 10-day return on a gold ETF? “If you want to dispense information that you just buy and hold,” Orman told me, “I wouldn’t want to see your track record.”

Well, I’ll happily ignore Orman’s advice on this front, as well as the advice in her Money Navigator newsletter, and I’m going to stick to my buy-and-hold strategy instead, even though Orman’s telling me that “index funds are no longer going to be the way to do things, you need to buy ETFs with high dividend yields”.

All of which is sad — because the Approved Card, as I said originally, really is as good as prepaid debit cards get, and has a bunch of features that I can only dream will be replicated elsewhere.

There’s free access to your credit report, along with a free credit monitoring service, just for starters. I’m not convinced that these things are worth paying for, but if you get them for free, you can’t really complain. There’s a huge nationwide network of free ATMs, with an easy-to-use tool for finding them. There are discounts from various merchants. There’s a return tracker: when you return an item to the store and they say it’ll take a certain number of days for the money to be credited to your account, you can enter that into the system and it will tell you when the refund arrives, or warn you if it hasn’t arrived after two weeks. And there’s a wonderful service which texts or emails you your balance at 8am every morning, so that you can start the day knowing exactly how much money you have on your card, without even needing to check.

Most importantly, there’s a user-friendly interface which is designed to help you save, rather than spend, and to avoid fees, rather than incur them. Orman is absolutely genuine in her desire that everybody with this card pay no more than the $3 monthly fee — the phone system and the alerts system and everything else are set up to actively discourage the kind of behavior which would incur any extra fees on top of that.

But the point is that I need to make my own determination, here, about the virtues of the Approved Card. On close examination, and after spending an hour on the phone with Orman and Bishop, I’ve come to the conclusion that it’s a very good product. (I also have to take Orman’s word for some of this, since things like the Approved Discounts and the return tracker haven’t made it onto the Approved Card website yet.)

But what I can’t do is simply say “you can trust Suze Orman”. You can’t trust Orman on the subject of her competitors — which, now, includes every checking account in the country. You can’t trust Orman on investment advice. And I don’t trust Orman either on the value of credit scores and credit monitoring — a service she sells through MiFico for $50 per year.

Orman’s heart is in the right place: none of her products are really bad. If you sign up for a one-month free trial of her newsletter, you don’t need to provide a credit card number: all you get is the newsletter for one month. If you then want to subscribe, you need to subscribe. That’s a sign of an honest merchant: Orman isn’t looking to rip anybody off.

But if you want an impartial judge of whether to have a checking account or a prepaid debit card, Orman is certainly not the person to ask: she’s a full-fledged financial-services provider, now. Who will watch the watchdog? I think we need a new guru.

When Mitt Romney started plugging his friend’s for-profit university as a solution to the problem of rising higher-education costs, he was surely doing well by a major campaign donor, while giving pretty bad advice to potential students: no one should enroll in an $81,000 21-month program in “video game art” if it has — as this one does — a graduation rate of just 38%.

But Romney’s staking out an important philosophical stance here, too, when he praises the for-profit education industry in general as an affordable alternative to traditional colleges.

How can a company which exists to maximize the profits for its shareholders, and therefore to extract as much money as it possibly can from its students, possibly cost less than a traditional college which is run on a not-for-profit basis and which might well have a substantial endowment subsidizing tuition fees? Most traditional colleges charge some students nothing at all, while at the extreme, Cooper Union has a flat tuition rate of zero. For-profit colleges can’t possibly compete with that.

For-profit colleges have a fiduciary obligation to, basically, take the money and run: once they’ve been paid their tuition fee, they’ve made their money, whether the student continues to show up for class or not. But still, there are two main ways in which they could, at least in theory, compete on price with traditional colleges.

The first is to take advantage of their high drop-out rates, and use the drop-outs’ tuition fees to effectively cross-subsidize the minority of students who actually finish the course. After all, if half your students have stopped showing up for class, they’re not going to cost you much money. The average student will still suffer, of course, but at least those who finish the course might benefit.

The other way that for-profit colleges can end up cheaper than their traditional competitors is by concentrating on costs: rather than paying enormous sums for prestigious professors and research institutes, they concentrate with a laser focus on their core business of teaching undergrads. After all, their concentration on profits means that they’re likely to be more efficient than flabby old traditional not-for-profits. Think of it this way: groceries are cheaper at Walmart than they are at the Park Slope Food Coop.

But does that hold more generally? If you have a for-profit and a not-for-profit in the same space, is the for-profit likely to be cheaper and more efficient? I’ve been wondering about that question myself of late, ever since I had breakfast with Betterment CEO Jon Stein a couple of weeks ago. I’d just written something less-than-flattering about the fees that he charges, comparing them unflatteringly to those charged by Vanguard, and he told me that it’s incredibly hard to even think about competing on fees with Vanguard when you’re a for-profit company and Vanguard is mutualized.

That rang true to me — but it’s also something I wanted to check out for myself. There’s no doubt that Vanguard funds have historically been much cheaper than other funds, but to what extent is that just a function of the fact that they’re index funds, and index funds by their nature are cheaper things than actively-managed mutual funds? Certainly if you look at Vanguard’s ETFs, there’s not much evidence that they’re any cheaper than their direct for-profit competitors.

And what happens in other areas where not-for-profit organizations compete directly with for-profits? Hospitals, of course, are one — are non-profit hospitals measurably more efficient than their for-profit brethren? Credit unions are another; the banking lobby isn’t shy about keeping their operations restricted on the more or less explicit grounds that it’s not fair for for-profit banks to have to compete with mutualized credit unions. And in fact consumer-facing credit unions are, nearly always, much better value for depositors and borrowers than the big banks are.

One useful distinction here, I think, comes from Larry Summers, who talks about how a huge part of the US economy is now accounted for by non-traded goods, where the normal rules of competition become harder to discern. “In many of these areas the traditional case for market capitalism is weaker”, he writes, adding that “it is surely not an accident that in almost every society the production of health care and education is much more involved with the public sector than the production of manufactured goods.”

Summers concludes that “it is not so much the most capitalist parts of the contemporary economy but the least—those concerned with health, education and social protection–that are in most need of reinvention.” Unhelpfully, he gives no hint as to what kind of reinvention he has in mind, or whether he thinks that for-profit companies can do these things better or more efficiently than not-for-profit institutions.

But I do think that it behooves Obamacrats like Summers to engage directly with the facile certainties of Mitt Romney when it comes to things like this. For-profit colleges are not a better and cheaper alternative to traditional colleges; in fact, their shareholder focus by definition means that they don’t have their students’ best interests at heart.

Instead of pushing back, however, the Obama Administration technocrats love to talk about what they can learn from the private sector, and talk about public-private partnerships (where “private” always means “for profit”), and generally give the impression that even if they disapprove of individual for-profit colleges or healthcare companies, in principle they think such things are a swell idea.

Ideally what I’d like to see is some empirical data here: where do for-profits compete effectively with not-for-profits? Where don’t they? And if that particular distinction turns out not to be very useful in some of these areas, then what are the kinds of things we should be looking for instead?

I know full well that a lot of not-for-profit organizations are run in a dreadful fashion; I’m just not convinced that introducing a profit motive is always or even often the best way to fix that problem. Sometimes it might be: I’m thinking for instance about the way that American Homeowner Preservation, in Chicago, spun off a for-profit hedge fund in order to raise the kind of money which could buy up whole portfolios of distressed mortgages at a stroke. But I very much doubt that for-profit education is ever a good idea. I just don’t see how the incentives there could possibly be aligned.

Paul Volcker likes to say that the only worthwhile financial innovation of the past 20 years has been the ATM. So I suppose it was only a matter of time before that, too, was rendered evil.

Here, courtesy of Peter Eavis, is how the ATM at the Holiday Inn in Orlando now works — it doesn’t just charge $3 per withdrawal, but rather the higher of $3 or 3%.

I’ve never heard of anything like this before, although a bit of Googling turns up one page, aimed at ATM owners, saying that “Adult Entertainment clubs” frequently charge a percentage at their ATMs, and that although anybody going down this path “risks losing some transactions”, on the other hand it’s superior to simply capping the maximum withdrawal amount at some low level.

On the web, innovations are frequently found first on porn sites, and then work their way slowly into the mainstream; it seems the same thing is happening here, with strip-club innovations turning up at the Holiday Inn.

ATM operators were forced to display this screen by Sec 205.16 of Gramm-Leach-Bliley, the act which dismantled Glass-Steagal. There’s nothing in the act which caps fees at all, and neither is there anything which prevents ATM operators from charging their surcharge as a percentage rather than a fixed amount. Is this something the Consumer Financial Protection Bureau can look at, now that it has power over non-banks as well as banks? If not, I fear we’ll be seeing more and more of these ever-increasing ATM fees.

I tend to find fictionalizations of high finance disappointing. I wasn’t a huge fan of Margin Call: it seemed to me oversimplistic and often quite silly in its portrayal of a how a bank like Lehman Brothers operates. And Adam Haslett’s hugely ambitious novel Union Atlantic was worse. In both cases, a series of senior bankers behaved in ways that senior bankers simply wouldn’t ever behave in reality.

Robert Harris’s The Fear Index, however, is very different. For one thing, it’s not boring: it doesn’t allow financial exegesis to slow it down, and it’s as addictive as any thriller written. PIck this up on an airplane, and you won’t want to land. On top of that, it’s well written, to boot. I wouldn’t go so far as to call it literary, necessarily, but when our antihero, Alex Hoffmann, reaches up to touch “the hard puckered smile of his wound”, or when a key subplot is artfully introduced, early in the book, with the single word “again”, and then left to simmer for 150 pages before being properly picked up, you know you’re dealing with an author who relishes the craft of writing. Oh, and did I mention there’s even an autistic fund-of-funds manager named Ezra Klein?

For me, however, the greatest pleasure of this book is that it gets finance right. It’s set in the world of algorithmic hedge funds, and the whole thing takes place on May 6, 2010 — the day of the flash crash (and the UK general election). The details are specific, and correct — everything from the way that hedge fund managers sell their funds to investors, to the PhD snobbism at algo shops, to the income-tax rates on Switzerland-based hedgies, to the mechanics of the NBBO system and algorithmic e-mini orders during the flash crash. The thing that freaks out the managers at Hoffmann’s hedge fund is not that they’re losing money, but rather that they seem to be losing their delta hedge.

This is a thriller, of course, so there’s a quantum of what Harris calls “Gothic flights of fancy” in there as well. (“Briefly the knife trembled close to his face. ‘Es ist, was Sie sich wünschen,’ whispered Karp soothingly. It is what you desire.”) And the dystopian fear at the heart of the book is not new — it’s been a science-fiction staple for decades. But as Harris explains, reality itself has already become outlandish and scary in largely-invisible ways.

Harris throws an enormous number of torments at Hoffmann, his billionaire hedge fund manager, but the one that really sends him and his wife over the edge is when her gallerist manages to sell out her entire art show on its opening night, for the sum of $200,000. Now that’s what I call a rich-people problem: there’s some very dark satire, here, just beneath the fast-paced surface. I hope that Paul Greengrass manages to retain it, in the upcoming movie.

S&P brought its hammer down on Europe today, with nine — count ‘em — downgrades of euro zone countries. The removal of France’s triple-A has been getting most of the headlines, but for me the bigger news is the fact that Portugal has now been downgraded to junk status.

Both of those moves, however, are pretty standard for ratings agencies in general and for S&P in particular: a slightly belated recognition of what has long been obvious to the rest of us. If anybody really thought that French sovereign debt was risk-free, or that Portugal, with its ten-year bond yielding somewhere north of 1,000bp north of Bunds, was investment grade, then they have surely been living under a rock for the past couple of years.

There’s one area, however, where S&P’s actions are going to have a significant and far from positive effect — and that’s the European Financial Stability Facility, or EFSF. The way that the EFSF is structured, its credit rating is particularly reliant on the ratings of the euro zone’s biggest sovereigns. Here’s how S&P put it back on December 6:

Based on EFSF’s current structure, were we to lower one or more of the current ’AAA’ ratings on EFSF’s guarantor members, all else being equal, we would lower the issuer and issue ratings on EFSF to the lowest sovereign rating on members currently rated ‘AAA’.

What this means is that Europe now faces a choice. On the one hand, it can restructure the EFSF so that it retains its triple-A credit rating. That would almost certainly involve shrinking the EFSF in size. Or, it can be sanguine about the EFSF downgrade and just let it happen. But that’s not a pleasant outcome either, given that everybody’s bright idea, when it comes to Europe’s sovereign bailouts, is to leverage the EFSF to some multiple of its present size. Leveraging a triple-A EFSF is hard enough; leveraging a double-A EFSF is pretty much impossible.

My guess is that the EFSF is going to get downgraded very soon — quite possibly on Monday. There’s actually not much point in Europe restructuring it so that it retains its triple-A: the political cost would be huge, and the benefit would be entirely hypothetical. (In theory, the financial markets are happy to lever up triple-A-rated assets. In practice, if those assets are European sovereign debt, not so much.)

Some small part of me thinks it’s a jolly good thing that the world is losing its store of triple-A assets. They’re dangerous things, precisely because we’re given to understand that they’re risk-free. But in this particular context, there are very few ways that today’s news can help Europe, and there are many, many ways that it can hurt. Not least when it comes to the amount of capital that Europe’s banks need to squirrel away against their stocks of sovereign debt.

Europe’s a risky continent; S&P is simply making that fact a little more obvious. In an ideal world, S&P’s opinions wouldn’t carry any more weight or importance than anybody else’s. But this isn’t an ideal world, and they do. And countries like France, which don’t control their own money supply, aren’t as immune to ratings-agency actions as the US turns out to have been.

The immediate ramifications of this announcement, in terms of global stock market reactions, aren’t important. And it’s even possible that if it accelerates the move away from the EFSF and towards the ESM, we could find a little bit of silver lining here. But the fact is that Europe is more fragile, now — more susceptible to changes in sentiment or genuine exogenous shocks — than it was yesterday. And that cannot be a good thing.