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Charles on… anything that comes along

Wednesday 29 October 2008

Filed under: — Charles @ 11:01 pm

The Jennifer Aniston neuron (and the Russell Brand one): never let it be said news must be “new”

So, let’s start at the back, with a story from June 2005 from New Scientist, headlined “Why your brain has a Jennifer Aniston cell‘:

Obsessed with reruns of the TV sitcom Friends? Well then you probably have at least one “Jennifer Aniston cell” in your brain, suggests research on the activity patterns of single neurons in memory-linked areas of the brain. The results point to a decades-old and dismissed theory tying single neurons to individual concepts and could help neuroscientists understand the elusive human memory.

Jolly good. And now, the Telegraph (and Daily Mail and others), this week (being October 2008): ‘Jennifer Aniston neuron’ shows how we react to celebrity faces, which in the Telegraph explains:

The “Jennifer Aniston neuron”, as it has been dubbed, helps explain why we are able to recognise familiar faces so quickly.

When shown a picture of the Friends actress, a particular cell in people’s brains is fired up. Photos of other celebrities - such as Halle Berry, Tom Cruise or Oprah Winfrey - spark a reaction in entirely different cells, the study by neuroscientists at the University of Leicester showed.

(© loads of papers.) But why so many, and why now?

Turns out it came from a press release, from Medical News Today, which goes

A leading neuroscientist and bio-engineer, whose research was recently cited among the top papers in the world, is to reveal details of his studies into what has been dubbed the ‘Jennifer Aniston neuron’ during a public presentation at the University of Leicester.

Which leads us, in a roundabout way, to Russell Brand and Jonathan Ross and Andrew Sachs and resignings-before-sackings and so on. Apart from the criticism of the people who so, so wrongly gave it the nod against the wishes of Sachs, I’ve seen criticisms saying “But everyone had ignored it until the Mail on Sunday ran its story - it was old news! It was nothing until they got onto it!”

Surprisingly, some of this came from journalists. The fact is, of course, that (in newspapers) “news is what the reader doesn’t yet know, but you can persuade them they want to”. Doesn’t matter if it’s ten minutes, ten days or ten years (even ten decades) old. Look at how the Sunday Times held its George Osborne/Mandelson/yacht story for weeks, waiting for the right angle - or time - to come along.

It’s easy to forget that it’s not always about getting the news to people instantly. If the Ross/Brand story had gone onto the Mail’s site on the Saturday evening after it went out, what could it have written? “Comic makes offensive joke”? Sometimes these things need to stew a bit. News is sometimes instant. But sometimes, it tastes better cooked slow.

Which isn’t an argument for not then getting it up on your website and telling the world about it. Only for not mistaking instantaneity with impact.

Sunday 26 October 2008

Filed under: — Charles @ 10:50 pm

Timothy Carron Brown taken to court? But what happened next? (Updated)

(Note for new readers: this story has moved on substantially. Read here and here: Carron Brown was sentenced to two and a half years, of which half was to be served in jail. Now read on.)

Hey, wait, what’s this? A story from the Telegraph from May, brought to my attention by a little bird, about Tim (or Timothy) Carron-Brown (or perhaps Tim Carron Brown; hyphen may be optional). (If you can’t think why I’m on about him, read the background.)

It seemed that the Revenue weren’t impressed:

Timothy Carron Brown, the company director behind the collapsed television production house Iostar and the £43m dotcom disaster Efdex, is due to go on trial for cheating the public revenue and forgery.

The prosecution is being brought by HM Revenue and Customs, and involves four companies of which Carron Brown has been a director, including Omedian, Anstruther Management, Company TV and Second Sight.

Carron Brown was amongst those blamed for the failure of Iostar, the television company which channel Five’s newly appointed chairman and chief executive Dawn Airey briefly joined as chief executive last year.

He has now been charged with 13 offences, including two counts of cheating the public revenue, four counts of being knowingly a party to the carrying on of a business for a fraudulent purpose, six counts of forgery and one count of using a forged instrument.

Carron Brown has not yet been asked to enter a plea, but when contacted by this newspaper he denied the charges. The case has been sent to Bournemouth Crown Court for a hearing on May 28.

Three of the companies involved in the case are either dissolved, in liquidation, or in the process of being struck off the Companies House register.

Called by the paper, Carron Brown denied the charges. But what happened when it came to court? I can’t find anything pinned around Bournemouth (apart from someone with the same surname called Laura who seems to be a hypnotherapist. Any relation, Laura?

And just a little more Carron Brownness: this intriguing article from Marketing Week in 2007, which is unsigned, begins:

From what I can recall of Carron Brown, who was about 24 at the time, he was a preternaturally gifted salesman with the gravitas of someone twice his age. Now that he has reached twice that age, he has been exposed as a bit of a fraud (in the eyes of those who have participated in his financial schemes at least). I hasten to add, because M’Learned Friend is tapping me insistently on the shoulder, that when I say ‘fraud’ I mean – of course – not all he was cracked up to be rather than a criminal fraudster. I have no reason to believe that, in acting unwittingly as the financial author of a series of entrepreneurial disasters, he has actually done anything fraudulent. Simply created a lot of misery.

Yes, I’ll say that as well - I’ve got no evidence he’s a fraud. He simply seems to have repeatedly been involved in companies that didn’t manage to come close to achieving what was promised of them.

Further: he has a LinkedIn profile (giving his location as Dorchester), although he doesn’t seem to have updated his website with any news - we’d have expected something triumphant about seeing off the Inland Revenue by now, wouldn’t we?

Then again, his LinkedIn profile describes him as “not currently open to receiving Introductions or InMail™.” Awww. And I can’t find any web trace of Omedian. Anyone doing better on this one?

And also, what’s happening to Dawn Airey’s lawsuit which I thought she might be taking up?

Update 3 November: Tim Carron Brown - or someone who claimed the name - called me this morning and said there were “errors” in the original story in The Independent in 2000. He seemed to find search engines’ indexing powers not to his liking. He said he would send an email.

I gave my email address. I await developments.

Wednesday 22 October 2008

Filed under: — Charles @ 10:48 am

The moving finger writes, and having writ, it’s stored permanently on RAID

Siobhain Butterworth, the Guardian readers’ editor, on “unpublishing” - where people ask to have things they’ve said removed from the archive:

The consequences of putting information about yourself into the public domain are more far-reaching in a world where things you say are linked to, easily passed around and can pop up if your name is put into a search engine by, for example, a prospective employer. The web makes a lie of the old cliche that today’s newspaper pages are tomorrow’s fish and chip wrapping. Nowadays, as I’ve said before, the things you say about yourself in a newspaper are more like tattoos - they can be extremely difficult to get rid of.

The odd thing being that in some ways we’re constantly looking online for more ways for what we write to be evanescent - to be something we just say in passing, that doesn’t get held anywhere. On Usenet, this used to be done by attached “X-No-Archive” to the top of a post, which would tell robots not to archive that post. (Durr.) But then some people, seeing that, would simply quote the post, to be archived; and others wrote robots that ignored the X-No-Archive flag.

Then it came to Facebook, which for a while was behind high walls that Google couldn’t get over. But those walls were knocked down. Now people have in a sense tried to retreat - a little, perhaps in their minds - to Twitter, where who knows what you said? Except even that’s all archived.

I guess instant messaging feels less permanent - but even that can be stored because it goes through a server.

Monday 20 October 2008

Filed under: — Charles @ 11:01 pm

China’s war on nature: it’ll end in tears

OK, first a clip from Boxing Day 16 December 2006, when the idea that the US housing market could bust was.. oh, unthinkable (link courtesy Antony Mayfield):

Note that this does all the tropes of US news (and yes, it is Fox News, so it’s even worse than normal) as noted by Kieren: nobody is actually allowed to say anything - note how the anchor interrupts people as they’re about to wind up their point - and nobody considers that anyone else has anything sensible to say; the idea is just, and literally, laughable.

What a lot of idiots the ones who aren’t Peter Schiff of Euro Pacific Capital (may his tribe increase) suffer the silence of the phones.

Next, a fascinating post about “Chimerica” - which is a chimera of China and America - by Niall Ferguson, who points out that an interesting ramification of that:

In our view, the most important thing to understand about the world economy over the past 10 years has been the relationship between China and America. If you think of it as one economy called Chimerica that relationship accounts for around 13 per cent of the world’s land surface, a quarter of its population, about a third of its gross domestic product and somewhere over half of economic growth in the past six years.

But now that party is drawing to a close, and not just because of the housing bust in the US (which was paid for by the money accrued by those saving their wages and company profits selling goods to the US that were made in China, which put it in banks which used it to buy US Treasury bonds, which issued it as cheap money to US banks, which lent it out to people to take out big mortgages on homes in excess of their value but which they could use to buy more goods made in China, which kept the circle going.. until people in subprime-land couldn’t keep up their repayments. Breaking the circle. But it’s not only in the US that the circle is being broken.

If the United States has a War on Terror, China has a War on Nature, by which I mean that the environmental effects of China’s breakneck industrialisation resemble an unprecedented assault on the natural world. And it does feel a little bit like a War on Nature when you visit China. I was in Beijing not long after the Sichuan earthquake happened, on the day of that extraordinary and universally observed public silence. It reminded me strongly of the atmosphere in the United States after the terrorist attacks of 9/11. But who was the enemy? All the extraordinary, formidable devices of the government’s propaganda machine were deployed to extol the virtues of the rescue workers and to emphasise the suffering of the victims. But there was no enemy except nature. It is nature, I suspect, that will resist China’s industrialisation far more effectively than anything else. But until environmental constraints begin to bite, Chinese growth represents a huge challenge to the world’s ability to produce commodities and extract fuels. That is the main reason why commodity prices look as if there is a war on.

OK, scary. And that’s before I’ve found the link to the piece I read the other day (on my iPod Touch, so can’t find the link here) with graphs about how housing had held up the US through the 2001 “recession”.

Saturday 18 October 2008

Filed under: — Charles @ 1:34 am

How to be a good citizen of Twitter: it’s all about the links, baby (updatedx2)

Having used Twitter now for.. what seems like forever, but is only a few months, I come to realise a few things about it, and using it (and especially what I like in it, and how I use it).

Not heard of Twitter? Think “Facebook status updates on crack”. OK, you’re good to go.

First: what I like is people pointing me to interesting stuff. Which generally means people who include links to interesting stuff in their tweets. When people don’t have those sorts of things in their tweets, and when it really is the unexamined life (”Having cup of coffee” “Eating biscuit”) then I’m afraid I’m not interested. I love ya and all that, but I’d like to get something done. And for me that means finding a fresh perspective, not knowing that you still have a pulse and a functioning brainstem.

The day I realised this I also realised, with something like horror, that I hardly ever do this. So I wrote a little Applescript at once to enable me to do precisely that from Camino. (NetNewsWire already has a function to let you post a feed item’s URL straight to Twitteriffic. It’s been in there since at least January, possibly longer, but I’d never used it.) (If you want the Applescript, it’s below.)

I think that Stephen Fry - who I praised for the quality of his twittering in Andy Murray v Stephen Fry serves up a surprise winner at the Guardian - is a really good example of someone who gets it right away: he posts pictures, links, little things that inform you. OK, so most of us don’t have exciting lives where we’re filming chimps in Africa. But then again, Twitter isn’t write-only (Andy Murray, can you hear me? No, probably not.)

That’s pretty much it, actually: lead the people who follow you to interesting stuff and you make yourself interesting. It’s the idea of the link economy that Jeff Jarvis talks about so much, brought down to the personal level.

Which means that if people start using Qwitter and ask me why I’ve unfollowed them, I’ll point them to this post. It’s simple really. In an attention economy, there’s only so much time I can listen to what colour your curtains are. Then, I’ve got to get on and earn some money. Please, no hurt feelings though. In the meantime, I’ve resolved to try to tweet useful stuff. Though the temptation to put any old rubbish in is huge, I have to admit..

Update: many appear to have taken umbrage. Don’t tell us how to use Twitter! they say, and that’s absolutely fair. Use it the way you like to. But I think that you’ll probably find after a while that you merge towards my thinking.. but as Mike Butcher points out, Twitter isn’t just a link exchange. It’s also about the conversation, which he realised when people (back in January? Earlier?) began using “@” to reference each other, and swap ideas, to argue, to move the conversation on:

It quickly became apparent that this was turning into the best use of Twitter of all. Not for long, winding conversations you might have on instant messaging, but short, to the point wise-cracks between people interspersed with a little status update here, a small observation on life there. Twitter was no longer about ’status’ or ‘what are you doing’. It was about conversation, ‘what are you thinking’, ‘what are we talking about’.

Mike’s right. And to all those (and in the comments) saying “Oh, so is this why you haven’t followed me?” - I don’t automatically follow people. (It’s a setting in Twitter. My setting is “don’t follow if someone follows you.”) I choose to follow people when they @ me with interesting stuff, or when I see them referenced by other people I do follow and find they say interesting stuff. (That’s better value than any damn web link.) So that’s why. I didn’t unfollow you - I never was in the first place. But please, don’t be offended. It’s just my attention deficit - in the attention economy, you simply can’t have a trade imbalance on that one. Happy now? Or at least, less unhappy?

Update 2: Paul Walsh thinks Qwitter will do more harm than good. That could be right. People get too wound up on whether they’re being followed reciprocally. For me, what makes Twitter great is that it’s *not* like Facebook, where you must be “friends” to share information. I can follow people who aren’t at all interested in what I have to say, but who I find interesting.

Oh, yes, that Applescript. Here it is. Possible improvements: use bit.ly; hide Twitterrific after posting. (Not sure how to do that.) Any more?

(To use it, paste into Script Editor on a Mac (in /Applications/Applescript); press compile, and get ride of spare line endings; enable scripts and save in Library/Scripts/Camino/ - if you’re using Camino, that is. If not, then in Library/Scripts/[your browser]. Warning: Firefox 3 doesn’t understand Applescript to any appreciable degree, and certainly not enough to do this.)

set baseurl to "http://tinyurl.com/create.php?url=" -- we'll use this if the tweet we make is too long

tell application "Camino" --you'll have to tweak this depending what your browser is; Safari has a different instruction to get the URL, I think

set theurl to URL of current tab of front window

set theText to text returned of (display dialog "Comment?" default answer "")

end tell

--now we've got a short comment and the URL. Tie them together, but watch that they're not too long..

set thecomment to (theText & ": " & theurl) as string

if (count characters of thecomment) is greater than 140 then set thescript to ("curl " & baseurl & theurl) as string

set thebit to do shell script thescript

set thecomment to theText & ": " & thebit as string

end if

tell application "Twitterrific"

activate --so you can be sure it worked, and see it posting

post update thecomment

end tell

Tuesday 14 October 2008

Filed under: — Charles @ 11:27 pm

Gary Marshall is 10! In deadlines, that is. Which is about 1,000 in grey hairs..

Gary Marshall is 10! Years in print, that is. Here’s the short version of how he got there:

[In my previous job] I’d drive to Clydebank and I’d mope my way through the working day, buggering about on the internet when I got the chance and reading .net in my lunch break. Then I’d go home, eat, go to the pub, get plastered, come back and fight with people online. I figured I’d keep doing that until my liver exploded.

And then I had an idea. I’d been reading .net, and my mind wandered, and I thought about things, and I came up with The Greatest Idea For A Magazine Feature Ever. Giddy with excitement, I emailed it to the editor of .net, Richard Longhurst. And amazingly, he replied.

That, he said, is the worst idea for a magazine feature ever.

He wasn’t being nasty; he also said that my email had made him laugh. Did I have any other ideas?

Darn tooting I did. I sat up until 4am, racking my brains until I’d come up with the Ten Greatest Ideas For Magazine Features Ever. I sent them to Richard the following morning. His reply was almost instant.

When I said you’d sent me the worst idea for a magazine feature ever, I was wrong, he said. I’ve just read ten ideas that are even worse.

Richard was clearly amused by this, though, so he gave me a chance. Can you do 3,000 words about online journals for Friday?

I had no idea what online journals were, and I had no idea how you were supposed to write for print. So of course I said yes.

It’s weird how that works. My experience was very similar - you read a magazine, you love it so much that *you* want to be in it, because that will somehow make things perfect. In my case it was a tennis magazine, but the principle’s the same. As a writer, you somehow find an editor who likes the stuff that’s coming out of your brain; it might be formless but they can see there’s something in it. As an editor, I find that still happens: there are people who email with ideas that are simply hopeless (and sadly so are the people); but with others, you get that sudden sense of deja vu; this is you, but in another person, another time, and that’s when you say “That’s not much of an idea, but why don’t you write about…?”

By the way, you should read the whole post, which is typically good.

Monday 13 October 2008

Filed under: — Charles @ 12:38 am

Credit Default Swaps explained; but there’s only $34.8 trillion of them..

I said I’d explain Credit Default Swaps. Just to give you something before it’s on everyone’s lips again. As it may be this coming week with the Lehman’s CDS auction. So here’s the reasons why they are toxic, with (hopefully) some simple-to-follow spin.

You live somewhere. A house or flat, say. You have stuff in it. Naturally, you take out insurance against your place burning down. You contact an insurer, who agrees to insure it, for a premium you pay. If it burns down, they’ll pay out.
Now, you can’t take out insurance against *someone else’s* house burning down - in law you don’t have any “interest” in it (and it might make people think you wanted it to burn down, because you’d get the big payout with no personal loss).

But with CDSs, anyone can play. They are insurance against any house (read: financial deal) burning down. You can get one, two, three, four, five, any number of people betting each other about whether this or that financial thing (company bond, mortgage-backed security, Treasury bond, etc) is going to turn into dust.

As long as you can find someone who’ll be a counterparty - that is, take the opposing view, and take the position of “insurer” - then you’re off and running.

And this market is completely unregulated. So to quote Dirk van Dijk’s explanation (at, I think, the original place it appeared):

If you buy a bond from, say, General Motors (GM), you are lending them money for a set interest rate for a specified length of time. You face two sets of risks in doing so. The first is that they go bankrupt and don’t pay you back. The second is that interest rates rise and the bond falls in value (think of bond prices and interest rates as being on opposite sides of a see-saw).

With a CDS, you could go out and find someone who will insure against the default risk. For a given premium, the seller of the CDS will pay off on the GM bond if GM goes belly up. Now, if it was from a real insurance company, the insurance company would be regulated and would have to hold enough money in reserve to pay you off in case GM actually did go belly up. This is just like how a Life Insurance company has to have enough cash on had to pay off on your policy in case you die.

However, since this is an unregulated market, someone can sell you a CDS and blow the money in Las Vegas. In that case, if GM did go belly up, you would just plain be out of luck.

In the case of life insurance, there are strict limits on who can take out a policy on you. You can take out a policy on your own life, and on close family members. In some circumstances you can take out a policy on your business partner, but beyond that there are not many people you can take out a policy on. You have to have what is called an insurable interest; you can’t just wander the halls of the hospital looking for people who are unlikely to make it and take out life insurance policies on them.

This is not true for the CDS market. You are perfectly free to take out a “life insurance policy” on GM, GE (GE) or any other firm that issues a bond, and you do not have to be holding the bond. You can even take out a “life insurance policy” on the synthetic garbage the Wall Street has been pumping out.

And when people suddenly wake up and go “huh? Why did I think that people would pay out on policies on mortgages with horrendous reset payments?”, and those mortgage-holders default in huge numbers, your CDS suddenly comes due. Someone’s on the hook. Is it you? Is it that guy over there? How do you know? If they offer some financial stuff as collateral against a three-month loan they want of some money, how do you know which of its CDSs and so on are good and which are junk - or, worse, expose you to paying out on something that might happen in those three months?

The market in CDSs ballooned because, as van Dijk explains, hedge funds found them amazingly useful:

People use this market to bet on the credit worthiness of companies, and often hedge funds will hold both long and short positions on the same underlying credit. For example (NOTE: figures are made up here, not a reflection of the actual creditworthiness of GE), the hedge fund might make a bet that it is worthwhile to get $200,000 up front and be on the hook for $10 million if GE defaults sometime in the next five years. Then after a few months, GE raises a bunch of capital which significantly strengthens its balance sheet and lowers the risk of default, so it can make a bet with someone else who would now be willing to take just $100,000 to bet that GE will not go belly up within then next five years. The hedge fund could have a perfectly matched book, so in theory they were totally indifferent if GE survives or not.

However, suppose that the person who they made the bet with goes bankrupt themselves and can’t pay up. That hedge fund might then have a hard time paying its counter party. This is where the fear of “cascading cross defaults” comes in.

And that’s where we are. If you want a little reassurance, though, there’s Paul Kedrosky’s Infectious Greed blog: he used to be a broker/banker/on Wall Street, and writes a very informed (well, duh) blog.

For instance, you can stop worrying about CDSs on mortgages. They’re only 1% of the CDS market, which has been downsized! Yes, to only $34.8 trillion! Yes, I said trillion! So that’s.. um, 0.34 trillion of mortgage-based CDSs - or $340 billion worth. Come on, that’s just a rounding error, isn’t it?

As Kedrosky , points out: ”

The Deposit Trust & Clearing Corporation folks do some weekend working debunking myths about credit default swaps (or, as I like to call them, rodents of unusual size). Among other things, the DTCC says that net Lehman-related CDS fund transfers will be closer to $6-billion than the $250 to $400-billion figures that had been bandied about last week. It also says that less than 1% of the CDS contracts extant are directly mortgage related.

And as has been pretty obvious, the size of the CDS “market” has been wildly overstated, in many ways.

Reported estimates of the size of the credit default swap market have so far been based on surveys. These surveys tend to overstate the size of the market due to each party to a trade separately reporting its own side. Thus, when two parties to a single $10 million dollar trade each report their ‘side’ of the trade, the amount reported is $20 million, which overstates the actual size by a factor of two since both reports relate to a single $10 million contract. When examining the outstanding amount of actual contracts registered in the Warehouse (not separately reported ‘sides’) as of October 9, 2008, credit default swap contracts registered in the Warehouse totaled approximately $34.8 trillion (in US Dollar equivalents). This is down significantly from the approximately $44 trillion that were registered in the Warehouse at the end of April this year.

Hey, so that’s $10 trn we’ve pared off right there. Actually, the CDS market must be a lot smaller *in terms of the money changing hands* - rather as the options market is far smaller than the numbers quoted, because not all options are exercised.

The trouble comes though once securities start to fall, bonds turn to junk, and the CDSs come due. Then people are on the hook for money they may very well not have. It’s the whole margin call thing that magnified the 1929 crash - but this time, global.

Did I mention that unregulated selling of financial instruments is bad? OK, now I have.

Saturday 11 October 2008

Filed under: — Charles @ 4:18 pm

A graph to really scare you about another mortgage shock waiting in the US - and so, us

The scary debt reset coming in 2010-11

You thought that $700 billion will be the US banks’ toxic assets? It won’t - not by a long chalk. There’s another bunch of toxic mortgages just waiting around the corner, in 2010 and on, which will be just as bad, and hit more people in the US. The graph above has been swimming around a bit (here and here, particularly) but it’s worth reading the analysts’ note it originated in. (For a version of the graph with the axis in years, see the second link. It’s just as big and scary.)

The work comes in a Credit Suisse note titled “Mortgage Liquidity du Jour: Underestimated No More” (that links to Scribd, where you can download it yourself and groan).

The timing is interesting - in March 2007, who’d heard of the credit crunch? It hadn’t happened: those Bear Stearns funds hadn’t turned sour. So these people were miles ahead of the curve. Too bad too few people listened to them. (Let’s hear it for Ivy L Zelman, Dennis McGill, Justin Speer and Alan Ratner. Hope they’ve kept their jobs - they at least deserve to.)

After walking you through the craziness of the US housing market, where people were fighting for market share, and damn the consequences - “As one private builder indicated to us, in the past nine months anybody with a pulse that was interested in buying a home was able to get financing, which certainly helps explain the poor performance thus far of 2006 loan vintages” - they look at the growth of “exotic” mortgage products.

You’ve heard of subprime, of course, but probably not Alt-A - which is a step above subprime, typically (in the past) for people in the US who’d had a mortgage go bad, or missed payments. Alt-A exploded to become 20% of the market in 2006. And there it lies in wait.

The analysts note:

The “big brother” of interest only mortgages is the negative amortization mortgage, which in recent years has gained popularity. The neg-am mortgage, which is often used synonymously with “option ARM”, provides homebuyers with an extra payment option each month. In addition to paying the fully amortized payment or just interest costs, an option ARM actually allows borrowers to make a “minimum” payment that is less than interest costs. The minimum payment option results in a homebuyer actually having negative equity in their home, absent an increase in the value of the house (i.e. the borrower owes more at the end of the month than it did at the beginning).

I actually had a “mortgage” like that once - in 1988. It was sold to me in the UK by Security Pacific, though it wasn’t interest-only - there was an endowment attached (thank God; it’ll mature some time in the next few years). But it did let you not pay all the interest, which was then rolled into the principal (the amount you owe overall, an on which interest is charged). It seemed like magic - at first. My first use of a spreadsheet was to model our payments (I bought with a friend). Abruptly I realised we were going to be in deep and hot water if we didn’t rapidly increase our payments. And when interest rates shot up following the ERM debacle, it was suddenly time to get straight out of that mortgage.

But now meet our newest friend, the option ARM (ajustable-rate mortgage):

Similar to an interest only mortgage, option ARMs only provide borrowers with these payment options for a finite timeframe, which sets the stage for a significant payment shock when payments are recast to the fully amortizing rate at the current interest rate level. Depending on the amount and terms of the loan, monthly payments could increase in excess of 40% upon rate reset on these types of mortgages.

Option ARMs are super toxic to borrowers. That’s all you need to know, really. And if they’re toxic to borrowers, they’re toxic to lenders. They’re the light blue-y ones in the graph. They don’t even begin to show up until 2009 (24 months from the start of the graph in Jan 2007).

As shown in Exhibit 29 [one of the graphs], an estimated 23% of total purchase originations in 2006 were interest-only or negative-amortization mortgages. According to our private builder survey, interest-only and option ARMs represented 24% of total home sales in 2006, in-line with our market-wide estimates. This was down slightly from the levels seen in 2004 and 2005, most likely due to the decline in investors in high priced markets, as well as lenders tightening qualification standards

The trouble though is that while the subprime bomb has exploded, the option-ARM still hasn’t. People won’t be able to make the payments - especially if things are worse in the US than they are now. (At the time of the note, the analysts were able to talk breezily about “recovery” as they looked past house price falls. Nobody’s saying that word now.)

Another point that a friend (who’s an IP lawyer who understands all these things as he works in the City and deals with thme) is that in the US, a mortgage attaches to the property - not the person. If you’re in negative equity and you hand in the keys, you’re not liable for the outstanding loan. Sure, it will affect your credit score, which does affect your ability to get credit, but that’s not the same as what you’d have in the UK, where you’d pretty much have to declare bankruptcy.

So things are even worse for the US banks and mortgage lenders than you might have been led to believe - and that’s coming up in two years’ time.

Can’t we reflate the housing market, some people wonder, by cutting interest rates? Mark Shuttleworth (he flew to the moon, you know, and is behind Ubuntu) says it’s a solvency problem, not a liquidity problem:

Dramatic easing of interest rates will help to slow down the pace at which we have to deal with the bankruptcies, but they won’t change the cold reality of the situation, and they run the very real risk of making things worse by encouraging another round of speculation based on free money. We are once again in a situation where the US discount rate is effectively a negative real rate of interest, as a gift to the banks, but staying there for any length of time puts us back into a state of addiction.

Next time we’ll deal with credit default swaps. Those make Alt-A ARMs look like a safe investment…

Friday 10 October 2008

Filed under: — Charles @ 10:21 pm

Gee, I’m going to miss those lolcats

From the Wikipedia article for Ohai, which is a place in New Zealand:

The lolcat in the wild

(The version on the right is the post-edited version “removing dumb vandalism”. Spoilsports.)

Monday 6 October 2008

Filed under: — Charles @ 12:05 pm

Steve Jobs not ill, media slightly unsettled (updated)

On Friday afternoon a “citizen journalism” site called iReporter (owned by CNN, which as far as I can tell treats it like a sort of sandpit where the citizen kids can amuse themselves) carried what would, in many circumstances, have been a dramatic report:

Steve Jobs was rushed to the ER just a few hours ago after suffering a major heart attack. I have an insider who tells me that paramedics were called after Steve claimed to be suffering from severe chest pains and shortness of breath. My source has opted to remain anonymous, but he is quite reliable. I haven’t seen anything about this anywhere else yet, and as of right now, I have no further information, so I thought this would be a good place to start. If anyone else has more information, please share it.

Good Lord! Could it be so? I applied my journalistic doubt filter. (Having been caught out by some pranksters in the past, this is now my first reaction to potentially huge news like this.)

First of all: what time would it be in California, where Jobs lives? Hmm, at 2pm on a Friday in London, it would be at least 8 hours behind - in other words, 6am. That at once gave a doubtful cast to two of the points in that “report”.

Who and where could the “insider” be? Not someone at Apple. While there might be people at 1 Infinite Loop who’d work until 3am or 4am, Jobs wouldn’t. He’s got a family and, well, a life. So he would have been at home. So the “insider” would be inside to what? The hospital? Paramedic dispatch? In which case they either wouldn’t know that it was a major heart attack, or what the symptoms were.

Plus sources who opt to remain anonymous yet are “quite reliable”… sure. We come across those all the time in journalism. We call them either “politicians briefing against an opponent” or “loons”. Generally, in both cases, you’re talking about lies.

The killer detail though was this. Let’s say it had really happened, and that Johnny Citizen had been told this by his mate in paramedic dispatch. (Unlikely, because you’d have an address, not a name, so who’s to know who’s suddenly complaining of chest pains? Anyway).

How easy is it to enter something on iReporter? Not very easy, actually. You have to register first - fill in your name and email and click on a link in a confirmation email. OK. And how many other reports had this person filed? None. Nada. Zero.

So they’d been told this by their friend, and said “I know, I’ll go and do it on iReporter.. umm, login.. password… where’s the email, come on, come on!” And then they’d fill in this vague but detailed account?

Come on. Any sane person would either Twitter it, or put it on MySpace or Facebook, or - hell - ring up their local radio or TV station if they really believed their tip. This failed the “did a real person do this in real time?” test. Conclusion: obvious prank.

However others “reported” it (it was bouncing around Twitter for hours). The effect on Apple’s stock was dramatic: it dipped suddenly, before Apple was able to get the word out that (unsurprisingly) Jobs was fine. The US Stock Exchange Commission announced that it is investigating whether this was a case of rumour-driven short selling (pushing down a stock price to make profits). But it seems more likely that it was simply another offering from the pranksters at 4chan.

That didn’t stop Silicon Alley Insider from publishing the details of the claim, plus the rather weird claim that “citizen journalism failed its first big test”. Duh, no. Citizen journalism passed its first big test in the London bombings in 2005, when people inside tube trains took videos that showed what conditions were like.

(Mathew Ingram, who is generally a really good reporter, was on the train, saw the rumour on his Twitter stream, and echoed it. Big mistake. He got scolded by the Wall Street Journal’s Kara Swisher - and, I’ll say, me - for not checking a little harder. Henry Blodget at Silicon Valley Insider? Well, he’s not your mainstream media, and it shows, baby.)

Dan Gillmor notes that the real fools in all this were the people who sold Apple shares on the “news”:

The shareholders who panicked are fools. Not the first time. Maybe when enough people get burned after believing things they should ignore, we’ll all recognize that we have to be skeptical of everything — but not equally skeptical of everything.

Meanwhile for Jobs, who has already had his obituary published and multiple articles speculating about his health published, Friday morning in Cupertino was probably another chance to pull on his glasses, blink at the morning sunshine, and wonder quite how many times he’s going to get to die before he actually does get his chance at nirvana.

Update: CNet does the investigation:

What hasn’t been widely circulated yet is that iReport was not the first place the fake story was sent. Arnold Kim, who operates the blog, MacRumors.com, wrote Friday that someone submitted the same rumor to his site using an anonymous IP address. Kim did some research on the rumor and decided it was a fake. Later, he tracked the report and found it being circulated by members of online message board 4chan. Kim also discovered the item was circulating on Digg, a popular news aggregation site. Digg users, however, voted the story down, meaning they also were skeptical.

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