But Bob Shiller is much more ambitious when it comes to such things: “Countries should replace much of their existing national debt with shares of the “earnings” of their economies,” he writes in the Harvard Business Review.:

National shares would function much like corporate shares traded on stock exchanges. They would pay dividends regularly. Ideally, they’d be perpetual, although a country could always buy its shares back on the open market. The price of a share would fluctuate from day to day as new information about a country’s economy came out.

This was a bad idea when Jonathan Ford proposed it in August 2009, it was a bad idea when Shiller wrote about it in December of that year, and it’s an even worse idea now, because Shiller’s decided to kick it up another five notches or so:

Greece’s real GDP fell 7.4% in 2010. If its Trills were leveraged substantially—say, five to one—then the dividend paid on them would have fallen by about 40%. This would have done much to mitigate the crisis, making it easier for Greek taxpayers to bear.

This is almost literally incomprehensible. I spent a long time on the phone today with Shiller’s co-author Mark Kamstra, and even he had no real idea what Shiller was talking about here. I can see how an investor might try to leverage an investment in Greek Trills (a Trill being a bond paying one trillionth of GDP every year, in perpetuity) by buying those bonds with borrowed money. But I can’t see how Greece itself could do so. Shiller doesn’t spell it out, but these things would obviously be symmetrical: Greece would have to pay out five times its annual GDP growth in good years in order to get these large savings in bad years. And that seems like a clear recipe for unsustainable debt growth.

Even Kamstra concedes as much. “I think that a country would not issue a levered Trill,” he told me. “I think it gets you in a lot of trouble.”

But even if you put aside the insane concept of leveraged Trills, the idea behind them is still really bad. Kamstra tried to persuade me that the price of Trills would be less volatile than the S&P 500, and he might be right during periods of relatively normal interest rates. But when rates fall, it seems to me that he’s clearly wrong. A perpetual bond like a Trill is valued by adding up the present value of its income stream: how much is this year’s payment worth to me today, how much is next year’s worth, and so on. When you apply a discount rate, future coupon payments are worth less the more distant they are, and the sum of the total converges to the value of the bond.

If the coupons are steadily increasing, however, the math becomes very dangerous. The coupons will rise at the rate of nominal GDP growth, which in the US will probably be somewhere in the 4% to 5% range over the long term. As a result, if you’re a risk-averse person who wants a perpetual US government security and your discount rate is say 3%, then the expected value of a singe Trill is actually infinite. Of course, no security trades at a price of infinity. But the fact that valuations can get so high in a low-interest-rate environment is all you need to know about just how volatile Trill prices could get.

The point here is that Shiller seems to think that the price of Trills would be driven mainly by “new information about a country’s economy”. But he’s wrong about that. new information about a country’s economy tells you quite a lot about what its GDP might do in the next few years. But if you’re holding a perpetual bond, fluctuations of 1% or 2% in the value of short-term coupon payments are not going to make much difference to the value of the bond. What really makes a big difference is the interest rate you use to calculate net present value. In other words, while Trills are designed to respond to news about the economy, in fact they would be an incredibly noisy and volatile instrument reacting mainly to changes in long-term interest rates.

But what if I’m wrong and Kamstra’s right, and economic news is more important than discount rates? At that point, measuring GDP accurately becomes extremely important: the markets would care greatly about differences of just a percentage point or two.

Except, you really can’t measure GDP to within that degree of accuracy. Here’s a recent paper from the Bureau of Economic Analysis:

Measuring the accuracy of national accounts esti­mates is a long-standing challenge for three main rea­sons. One, the early GDP and GDI estimates are based on partial data and are intended to provide an “early read” on the general picture of economic activity for decision-makers. These early estimates are revised as more complete and accurate source data become avail­able. Two, the source data for the national accounts come from a mix of survey, tax, and other business and administrative data; these source data are subject to a mix of sampling and nonsampling errors and biases that cannot be measured in terms of standard errors. Three, the national accounts are regularly revised to re­flect the changes in the economic concepts and meth­ods necessary for these accounts to provide a picture of the evolving U.S. economy that is relevant and accurate for today’s economy. These updates range from ex­panding the definition of investment from investments in plant and equipment to include investments in computer software to updating seasonal adjustment factors to reflect the most recent seasonal patterns.

What does all this mean in practice? Thomas Dall at the BEA helped me out, taking one recent datapoint as an example: nominal GDP at the end of the first quarter of 2009.

When it was first reported, that number was $14.097 trillion. But then three months later, in July 2009, it was revised upwards, to $14.178 trillion. A year after that it was revised back down, to $14.05 trillion, and a year after that, in July 2011, it came down further, to $13.894 trillion. In other words, between July 2009 and July 2011, the GDP figure for the first quarter of 2009 was revised down by $284.3 billion, or 2% of GDP.

And Dall didn’t pick that datapoint because it was particularly noisy: it’s the only one we looked at.

This is bad news for any government thinking of issuing Trills. Governments, after all, go to great lengths to issue easily-understandable series of bonds with fixed coupons, so that the financial markets can price them easily and have a transparent yield curve. The only people welcoming GDP bonds with open arms would be in futures markets, where traders love volatility and try to make lots of money off it.

Which, of course, is the whole reason that Shiller is pushing this idea so aggressively. Shiller is a principal in a company called MacroMarkets, which exists to create “innovative financial instruments to facilitate investment and risk management” — a/k/a volatile new derivatives.

If Trills existed, you can be quite sure that MacroMarkets would immediately create futures and options based on Trills, trying to make money off their volatility. The volatility would depress the price that governments could sell the Trills for, but at the same time it could make a fortune for Bob Shiller. “Bob’s experience in the markets is that if there isn’t enough volatility in the price of the contract, the speculators lose interest in the contracts,” says Kamstra.

So let’s discount Shiller, here, as someone who’s way too conflicted to take at face value about such things. GDP bonds are like most financial innovations: they’re much more likely to do harm than they are to do good. And no country should even dream about issuing such things until some big corporation has blazed the trail first, as a kind of proof of concept. Lots of companies, from Walmart to ExxonMobil, do better in good economies and worse in bad economies: it might make sense for them to issue GDP bonds. Let’s wait until one of them does, so that we can get a feel for how such bonds behave, before we ask our governments to follow suit.

I feel we’ll be waiting a long time. If it’s true that the price of a GDP bond can skyrocket when interest rates fall, that bond would be extremely dangerous for any company issuing it. The market value of the company’s outstanding bonds could easily exceed the company’s enterprise value, with the result that technically shares in the company would be worthless. I can’t imagine any CFO or corporate treasurer risking it. And neither should any finance minister.

But at the beginning, Eavis talks about how European policymakers “fear that payments on the swaps might set off destabilizing chain reactions through Europe’s financial system”; later on, he writes that “the swaps will also come under heavy fire if there is any indication that activating the Greek instruments is leading to stress in the financial system”. It would have been nice if he’d named one of those policymakers, or explained what exactly their fears might be.

How, exactly, would a CDS trigger lead to stress in the financial system? After all, as Eavis concedes, every time banks’ balance sheets have been examined, regulators have found essentially nothing in the way of unhedged CDS exposures.

There is the possibility of counterparty risk — a spectre Eavis raises only to dismiss it. In order for counterparty risk to be a problem, you need two things. First, you need a bank with a very large unhedged CDS exposure to one single name — the kind of position I’ve never seen any bank have. (Remember here that credit default swaps were invented for banks to sell down their loan exposure, not to increase it.) And then, on top of that, you need jump risk: the risk that the single name in question will suddenly default, forcing the bank to pay out a huge amount of money at once.

But in Greece, there is no jump risk at all. Because a default has been priced in for months, any bank which has written default protection on Greece has had to steadily post more and more margin against that position. When Greece officially defaults at the end of March, there will be an auction to determine the clearing price of the swaps, and the margin will simply get transferred to the bank’s counterparty. The bank will probably need to make no payment at all.

In other words, counterparty risk on sovereign CDS is probably a non-issue, but it’s certainly a non-issue in Greece.

So what are the “new fears” of Eavis’s headline? I’m beginning to think that in fact the fears are not that the swaps will get triggered, causing some kind of financial calamity, but rather that they won’t be:

Some chance remains that the exchange could be done voluntarily, avoiding a default swap event. That outcome would most likely prompt a torrent of criticism that the swaps did not cover holders against losses, as they were intended to.

“The whole nature of the C.D.S. contract would be called into question,” said Richard Portes, professor of economics at the London Business School.

As Eavis says, the chance of the swaps not being triggered is extremely small, at this point. But it’s higher than the chance that the trigger will cause some kind of financial-market calamity. It’s possible — unlikely, but possible — that Greece will get such a large acceptance rate on its exchange offer that the size of the holdouts would be very small indeed. If that happens, it’s also possible-but-unlikely that Greece will choose to simply continue paying those holdouts in full, rather than defaulting on them or trying to bail them into the deal through CACs. If both of those possible-but-unlikely things happen, then it’s definitely possible ISDA would determine that there was no credit event. But we’re so far down the chain of speculation at this point that these things are really not worth worrying about; the unanimous consensus in the market is that there will be a default, in March, and that the CDS will get triggered.

The thing that really worries me is not the CDS market at all. In fact, for all that credit default swaps were an intrinsic part of the financial crisis, the traded market in CDS has been remarkably robust. It certainly withstood the bankruptcy of Lehman without any trouble, both in terms of counterparty risk relating to Lehman’s own positions and in terms of CDS on Lehman being triggered when the bank failed.

Rather, what worries me is that the vast majority of people reading this article in the NYT will see the headline about New Fears, and if they skim the article will just see a bunch of concerns and some quotes from people on both sides. In other words, Eavis’s article is to a large degree self-fulfilling: people will read it and start being worried about the CDS market all over again, especially if — like 99% of the population — they don’t really understand the CDS market at all, and have no particular need or desire to get into the nitty-gritty. All they know, or think they know, is that credit default swaps are Dangerous Complex Derivatives, and that the Greek crisis is making them more dangerous still.

Meanwhile, Eavis never touches on what I’m pretty sure is the real reason that European policymakers are worried about a CDS trigger. A lot of people have been asking me about the Greek deal in recent days and weeks, and I get a lot of questions like the one I was asked yesterday by Amanda Lang, who asked whether default was in fact inevitable and whether Greece was just putting it off with this deal, kicking the can down the road. A lot of otherwise very well-informed people still think that this bailout is like previous bailouts, designed to avert a default. When in fact a huge default is right at its very heart. When the CDS get triggered, it’s going to be very obvious that this is indeed a Greek default. That’s something which bond market professionals are acutely aware of, but it hasn’t really sunk in to the broader popular consciousness.

If the Greeks and the Europeans can structure a deal where the credit default swaps aren’t triggered and the bondholders voluntarily swap their old bonds for new bonds, then it’s actually possible that this misunderstanding could continue well past the bond exchange, to the point that the broad public thinks that we’ve just seen another bailout, and misses the footnote that the bailout was accompanied by the single largest bond default in the history of the world.

If all goes according to plan, this is going to be an orderly bond default, to be sure — in contrast to the very disorderly defaults we’ve seen in recent years in countries like Argentina and Ecuador. But make no mistake: Ecuador Greece owes €14 billion to its bondholders on March 20. It is not going to make that payment, and instead bondholders who are currently owed 100 cents on March 20 will find themselves instead with a mixture of securities worth maybe 26 cents on the open market. When the CDS get triggered, that fact is going to get hammered home. Because although it has long been priced in to the market, it still isn’t broadly understood.

Underneath it all is the simple truth that economic growth is caused by people. Ever since the Eurozone was created, Europe has been quite clear about the fact that economic and monetary union can’t work without labor mobility. But sadly, the ability of Europeans to work in any EU country has meant an outflow of skilled professionals from Greece, when what it really needs is an inflow.

If you really want structural reform in Greece, a lot of that is going to have to come from new blood — northern European entrepreneurs and corporations setting up shop in Greece to take advantage of the large supply and low cost of labor there, as well as all the advantages of being both in the EU and in the Mediterranean. But that’s not going to happen so long as you read stories like this one, about how it took ten months to get permission to launch a website selling olive-oil-based products to the US market.

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

Once they climbed the crazy mountain of Greek bureaucracy and reached the summit, they faced the quagmire of the bank, where the issue of how to confirm the credit card details of customers ended in the bank demanding that the entire website be in Greek only.

When politicians talk about “structural reform” in Greece, they mean cutting out a lot of this kind of red tape. But that takes time, which Greece doesn’t have. Besides, you need some kind of financial system to support new businesses, and Greece’s banks are barely lending at this point.

The really big picture here is that European monetary union is a marriage — and not a happy one, right now. In any marriage, if one partner falls on hard times, it’s incumbent upon the other to support them. If they can’t, or won’t, then divorce is surely in the cards. Similarly, if one partner doesn’t trust the other, then the marriage will not last long. The latest Greek bailout is being sold with the idea that Europe will support Greece indefinitely, and trusts Greece to do everything it’s promised. Neither passes the laugh test. And so, rather than moving to Greece to help rebuild its economy, the rest of Europe will ultimately split up with its noncontiguous partner. The only question is when.

This chart, from the European Commission’s debt sustainability analysis of Greece, has been doing the rounds today. I posted it last night, and it got picked up by Joe Weisenthal as his chart of the day; it’s a very striking visualization of the degree to which the Greece bailout plan lies somewhere between optimistic and delusional.

I’m happy to say that Reuters was the first organization to get its hands on this analysis. At 4:21 EST, we ran our exclusive story, by Jan Strupczewski in Brussels, with the headline that Greek debt would still be 160% of GDP in the European Commission’s downside scenario. Jan took the 2,800-word analysis, and its wealth of charts and tables, and boiled it down into a 965-word story which was avidly read by news consumers around the world.

Later on, the FT’s Peter Spiegel also got his hands on the Commission’s analysis. His story ran at 6:15 EST, and was even shorter, at 566 words.

Necessarily, both stories cut out material from the original report, and as it happens neither of them mentioned the sharp uptick in future GDP growth. The first place I saw that was at Alphaville, with an anonymous post timestamped 02:44 GMT (someone was up late), which was 9:44 EST. “The baseline scenario in the report forecasts 4.3 per cent decrease in GDP this year,” said Alphaville, “followed by flat growth in 2013 and 2.3 per cent growth in 2014.” Clearly they had the analysis themselves, since those figures weren’t being reported anywhere else at the time.

But it wasn’t until 10:47 EST that the report finally appeared online, at Zero Hedge, allowing me to write my post. The Zero Hedge post has now reached 20,000 pageviews — a very big story by ZH standards.

Once the analysis was freely available online, it started propagating elsewhere, too: Alphaville (which, remember, had had access to it six hours earlier) finally posted it at 08:49 GMT, or 3:49am EST.

The analysis is very well written, clearly by a native English speaker:

There is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.

As such, I think it’s fair to say that the analysis itself was intrinsically superior to any of the news reports written about it. Given the choice between reading the Reuters story, or the FT story, or the primary document, virtually all market participants would plump for the primary document.

And yet neither Reuters nor the FT posted the document when they got their hands on it, preferring instead to simply write it up in their own words. Zero Hedge got the document more than six hours after Reuters did, but still gets all the glory of being the first site to post it.

There are three lessons here. The first is that reporters still don’t like posting primary documents, for various possible reasons. They might be worried about being sued for copyright violation, or they might have promised their source they wouldn’t post the document. More generally, reporters tend not to want to give away to their competitors information which they worked very hard to obtain. And as such, they’re often perfectly happy to promise not to post such documents: because they didn’t really want to in the first place.

The second is that legacy news organizations like Reuters and the FT still don’t think digitally: the unit of news is always the story, rather than, say, a primary document in PDF form. So if you obtain a primary document, the first thing you do is turn it into a story, rather than simply letting that document be the story.

Finally, it’s silly to assume that reporters are going to be particularly expert at extracting all the germane information from a report when they write it up. Especially when you’ve had a very long day, it’s late at night, you’re under time pressure, and you are looking at the document from a particular, inside-baseball perspective. Sometimes, reporters can add value when they write up primary documents, by putting them in perspective and in plain English. Other times, they miss important things. Either way, posting the document itself along with the write-up can only make the news story richer and more valuable. Even if doing so also helps the competition.

We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece… The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme. The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.

The problem, of course, is that all the observers and “segregated accounts” in the world can’t turn Greece’s economy around when it’s burdened with an overvalued currency and has no ability to implement any kind of stimulus. Quite the opposite: in order to get this deal done, Greece had to find yet another €325 million in “structural expenditure reductions”, and promise a huge amount of front-loaded austerity to boot.

The effect of all this fiscal tightening? Magic growth! A huge amount of heavy lifting, in terms of making the numbers work, is done by the debt sustainability analysis, and specifically the assumptions it makes. Greece is five years into a gruesome recession with the worst effects of austerity yet to hit. But somehow the Eurozone expects that Greece will bounce back to zero real GDP growth in 2013, and positive real GDP growth from 2014 onwards. Here’s the chart:

Note that the downside, here, still looks astonishingly optimistic: where’s all this economic growth meant to be coming from, in a country suffering from massive wage deflation? And under this pretty upbeat downside scenario, Greece gets nowhere near the required 120% debt-to-GDP level by 2020: instead, it only gets to 159%. And to make things worse for the Eurozone, the report explicitly says that under the terms of this deal, “any new debt will be junior to all existing debt” — in other words, there’s no way at all that Greece is going to be able to borrow on the private markets for the foreseeable future, so long as this plan is in place.

As in all bankruptcies, the person providing new money gets to call the shots. And it’s pretty clear that the Troika is going to have to continue providing new money long through 2020 and beyond. Under the optimistic scenario, Greece’s financing need doesn’t drop below 7% of GDP through 2020. Under the more pessimistic scenario, it’s 8.8%. And here’s the kicker: all of that money is being lent to Greece at very low interest rates of just 210bp over the risk-free rate. Much higher, and Greece’s debt dynamics get even worse. But of course even with well-below-market interest rates, Greece is still never going to pay that money back.

The cost of this plan is €130 billion right now, and €170 billion over three years, through the end of 2014; it just continues going up from there, with no end in sight. Remember that total Greek GDP, right now, is only about €220 billion and falling.

Oh, and in case you forgot, this whole plan is also contingent on a bunch of things which are outside the Troika’s control, including a successful bond exchange. The terms of the deal, for Greek bondholders, are tough: there’s a nominal haircut of 53.5%, which means that you get 46.5 cents of new debt for every dollar of existing bonds that you hold. The new debt will be a mixture of EFSF obligations and new Greek bonds; the new Greek debt will pay just 3% interest through 2020, and 3.75% until maturity in 2042.

The plan assumes that 95% of bondholders will accept this deal, which seems optimistic to me. Bondholders are by their nature a fractious and contrarian bunch, and Greece is not saying that it’s going to default on holdouts. As a result, bondholders have to guess what might happen if they fail to tender into the exchange: they might get defaulted on and receive nothing; they might get paid out in full; or they might get defaulted on while being offered, for the second time, the same exchange they’re being offered right now. Some of them, especially the ones holding English-law bonds, might well be tempted to hold on to at least some of their bonds, just to see what happens.

More to the point, the plan assumes that Greece’s politicians will stick to what they’ve agreed, and start selling off huge chunks of their country’s patrimony while at the same time imposing enormous budget cuts. Needless to say, there is no indication that Greece’s politicians are willing or able to do this, nor that Greece’s population will put up with such a thing. It could easily all fall apart within months; the chances of it gliding to success and a 120% debt-to-GDP ratio in 2020 have got to be de minimis.

Europe’s politicians know this, of course. But at the very least they’re buying time: this deal might well delay catastrophic capital flight from Greece, and give the Europeans more time to work out how to shore up Portugal if and when that happens. Will they make good use of the time that they’re buying? I hope so. Because once the Greek domino falls, it’s going to take a huge amount of money, statesmanship, and luck to prevent further dominoes from toppling.

Goldman’s claim backfired in one respect, in that it sparked a thousand semi-informed articles about high-frequency trading and how dangerous it is: articles which did Goldman’s reputation no good at all.

On the other hand, the claim did have its chief intended effect — it got U.S. authorities extremely excited, to the point at which they charged Aleynikov with criminal activity under the Economic Espionage Act.

Now the EEA was designed — and was initially used — to prosecute very different behavior, chiefly employees at defense contractors taking top-secret information and giving it straight to the Chinese government. The kind of thing which can absolutely be considered espionage.

The secrets at defense contractors, of course, are secret for reasons of national security. The secrets at investment banks and hedge funds, by contrast, are secret purely for reasons of profit: they reckon that if they have some clever algorithm which nobody else has, then that makes it easier for them to profit from it. Which is why it was always a stretch for the government to use the EEA to prosecute Aleynikov — indeed, it is why it was always a stretch for Aleynikov to be criminally prosecuted at all. Goldman could have brought a civil case against him, but instead they got their wholly-owned subsidiary, the U.S. government, to come down on him so hard that he ended up with an eight-year sentence. Violent felons frequently get less.

The forthcoming decision from the Second Circuit is likely to be a doozy; I’m told that the judges shredded the prosecutors during the oral hearing. And certainly their decision to enter a judgment of acquittal, rather than any kind of retrial, is a strong indication that they handed down this order with extreme prejudice against prosecutorial overreach.

Is it the government’s job to expend enormous prosecutorial resources protecting Goldman Sachs from competition? The Second Circuit certainly doesn’t seem to think so, and neither do I. Aleynikov’s actions were certainly stupid, and quite possibly illegal. But the way that Goldman managed to sic New York prosecutors on him bearing the sledgehammer of the EEA was far from edifying. And I’m glad that both Goldman and the Manhattan U.S. Attorney are surely feeling very chastened right now.

In the end, Fleshbot LLC was sold, or “sold”, on February 1, to Fleshbot’s editor, Lux Alptraum; if money changed hands I’m sure there wasn’t much of it. Jolie O’Dell, writing about the news of Fleshbot going up for sale, said that “the day a porn site can’t make money on the Internet is the day we all pack up and go home” — but in fact turning a profit on a porn blog is not easy at all. There’s a virtually infinite amount of competition, and the cost of porn online has basically gone to zero at this point, which means there’s even less money than there used to be for ad campaigns on sites like Fleshbot.

Fleshbot is certainly not the iconoclastic site that Denton aspired to creating when it was launched in 2003 — rather than taking a fresh look at where porn and eroticism might be found in life and on the internet, it increasingly became a mouthpiece for, and captured by, the porn industry. To the point that when Gawker Media started looking at porn-industry scandals, that ended up happening on Gawker, rather than on Fleshbot.

Interestingly, the kind of site that Denton originally envisaged is nowadays very common on Tumblr, which has a thriving porn-reblogging community, based around as many different niches as there are porn specialities. (Which is to say, a lot.) Fleshbot tried to be all things to all porn consumers, both gay and straight, and that’s not how porn works: people tend to gravitate towards their own personal kinks, rather than going for the anything-and-everything approach.

So what’s going to happen now that Fleshbot is an independent entity? For one thing, it has already moved to the ubiquitous WordPress platform from Gawker’s custom publishing software, which makes serving up the porn industry’s advertisements significantly easier. “For a variety of reasons, Gawker was looking to completely separate itself from Fleshbot,” says Alptraum; “on our end, the restrictive nature of the Gawker CMS/layout wasn’t really conducive to our work. On our own, we’re more capable of focusing our layout/ad sales/tech strategies in ways that are optimized for an adult site, rather than trying to shoehorn Fleshbot into models designed for a broader, more mainstream stable of properties.”

Alptraum’s job is not an easy one. The guy who used to sell Fleshbot ads for Gawker Media is now the CFO of Fleshbot LLC; there’s a lot of work to do, and I don’t think the site has ever made money. And now, of course, they need to worry about things like health insurance and payroll and all the other burdens of being an independent company, which were previously picked up by Gawker Media’s operations crew.

Alptraum is optimistic: Fleshbot is “an incredibly valuable property that hasn’t been optimized,” she says, “and I’m excited about the possibilities for expansion.” That might mean more live events like the Fleshbot awards; it probably means even further alignment with the porn industry. “At its core, it’s a project about destigmatizing and celebrating sexuality,” says Alptraum. “I also think it’s played a powerful role in helping to mainstream the adult industry.”

Meanwhile, Gawker Media now runs on a single advertising platform, rather than having to make Fleshbot the exception to many rules. Nick Denton wanted to shake things up, with Fleshbot; in the end, he just created a headache for himself. He kept the blog much longer than most entrepreneurs would have done, and Alptraum only has good things to say about him. But the parting has been inevitable for a long time now, and both sides are surely happier now that it’s happened.

Wrong. For one thing, as John Carney pointed out in January, it didn’t really spend money on those bonds, it just printed money. If Greece doesn’t pay the ECB back, the worst thing that happens is that the euro money supply gets expanded a little.

But for another thing, it turns out that the ECB had a little trick up its sleeve all along:

The national central banks in the euro zone are set to exchange their holdings of Greek bonds into new bonds in the run up to a private sector debt deal to avoid taking any forced losses, euro zone sources said on Thursday…

Sources said the process could start over the weekend, with one adding that the move was a technicality and that the new bonds would have the same terms as the original ones.

A technicality?! Ha! What’s happening here is many things, but it’s most definitely not a technicality. The ECB is taking its stock of old Greek bonds, which are worth very little and which are going to suffer a whopping great haircut next month, and swapping them out for shiny new bonds which Greece is going to pay in full.

This is no normal bond exchange: No one else gets this deal, and there are no tag-along rights for private-sector investors who might fancy the opportunity to do something similar. It’s a basic tenet of bond market that all bonds of a given series are equal and fungible, and that what happens to one happens to them all. But not here. You can fight about whether this bond is or should be pari passu with that bond, but it’s a no-brainer that any bond is pari passu with itself. Except in this case, it seems, where the ECB’s stock of Greek bonds have suddenly become senior to everybody else’s stock of the exact same securities.

On a conceptual level, it makes sense that the Troika — of which the ECB is a third — might be granted immunity from haircuts, in return for providing new money to Greece. On a legal and practical level, however, this is ugly — and you can be quite sure that it’s only going to get uglier from here on in.

Which brings me to the blog post of the month, from Daniel Davies, a/k/a dsquared. He’s structured the choices facing the Troika as a choose-your-own-adventure book; needless to say, none of the outcomes are particularly palatable, although some are definitely worse than others.

The point here is that given political realities, there is literally no real solution to the Greece problem. The market attempted some kind of rally on the ECB news today, which on its face is weird — if the ECB takes its bonds out of the restructuring pile, then that just means a bigger haircut for everybody else, if Greece is going to reach debt sustainability. But the rally, if it was related to the news at all, was probably just relief that something is being done — that plan beats no plan. Which is probably overly hopeful. There might be a plan here, but equally there might not: this could be a purely defensive mechanism, protecting the ECB from a chaotic Greek default.

The most notable thing about the news, for me, was the utter lack of eyebrows which were raised when it happened. Everybody’s expecting the unorthodox at this point, to the degree that when it happens, no one seems to care very much. Or maybe it’s just that no one has a clue what’s going on. I was at a very wonky dinner this evening, talking details of CDS determination committee protocols and the like, when it struck me that the politicians making the decisions here are not financial sophisticates; many of them like the idea of the CDS not being triggered just because they think that means Greece won’t have defaulted.

In short, expect things to get weird from here on out. We are entering a zone of probability distributions at this point, where actions stop having foreseeable consequences. No one’s really in charge, which doesn’t help. Greece has sophisticated and professional advisers, but Greece isn’t in control of its own destiny; the Troika is. And the various members of the Troika are no longer singing from the same songbook. The ECB has partially protected itself, with this move; but in increasing the amount of preferred-creditor debt that Greece has, it has also increased Greece’s debt burden and hurt the credit quality of the debt that Greece owes the IMF, which is also a member of the Troika.

Go play Daniel’s game: if anything it’s an oversimplified presentation of the various ways that the Greek crisis might play out in the next few weeks. There’s nothing in there, for instance, about tensions between members of the Troika, or about bondholders holding out with a blocking stake and complicating things that way. Then, once you’re thoroughly confused and depressed, put yourself in the position of a European politician who has to make real-world decisions with real-world consequences. And ask yourself how predictable your actions might be. The endgame is approaching; but the only thing we know for sure about it is that anybody who thinks they know how it’s going to play out is delusional.

Right now, if you’re a community bank and you need to raise capital, it’s not easy. Equity stakes in such banks are highly illiquid, and almost impossible to monetize, which means that when an owner of such a bank needs some money, they all too often have to sell the bank outright.

When I wrote about the Bank of Cattaraugus in December, I worried about the fact that it was hard to do community banking without the risk of the owners selling out. My proposed alternative was credit unions — and I’m still a big fan of those. But I can tell you, as a six-year credit union board member myself, that it’s hard to get the owners of credit unions engaged, partly because board members are unpaid and have no real stake in the bank beyond the single vote they have by dint of being a member.

I can think of a few socially-responsible double-bottom-line-style investors who might be interested in taking a minority stake in institutions like the Bank of Cattaraugus. Ideally they would see returns roughly in line with inflation, nothing special: the idea would be to encourage utility banking, rather than high-risk, high-growth strategies.

The need for equity capital at all levels of the banking world has never been greater. We learned two big lessons during the financial crisis: firstly that banks had too much leverage, and secondly that subordinated debt is all but useless in doing its job. It doesn’t provide a cushion against bankruptcy: if you’re forced to default on your subordinated debt, you will be shut down and sold off, in one way or another. Which is why regulators and analysts started concentrating much more on tangible common equity (TCE) instead.

Public banks can increase their TCE just by issuing new stock; with privately-held banks it’s much harder. And, truth be told, it’s still going to be hard even if and when the new SecondMarket exchange in bank equity gets off the ground. It’s not designed for capital-raising operations; it’s just designed as a way for existing shareholders to be able to sell their stock. Which funnels money to the shareholders, but not to the bank.

Still, raising capital is always easier if the person providing the money has some kind of possible future exit. So it stands to reason that if a bank’s equity is trading on SecondMarket, potential participants in a capital raise will be more likely to take part, just because they know that they have a relatively easy way of selling that stock in the future.

And some of these banks are going to turn out to be spectacular investments. SecondMarket calls it “exposure to hyper-local economic growth”, with an embedded M&A option: if small banks continue to struggle and get eaten by their bigger competitors, shareholders at least generally get to charge a premium when they sell. More generally, banks can provide massive returns just by dint of their embedded leverage.

There are massive risks involved here, too, of course. There’s no guarantee that investors will be willing to buy when you want to sell. The bank could get into trouble with the FDIC and get taken over, wiping out all its equity. Boards of community banks tend not to be particularly independent. Small banks have been shrinking, as a sector, for years, and there’s no reason to believe they’re going to stop doing so, the occasional populist campaign notwithstanding. Etc etc.

So the people investing in this market, quite rightly, are going to have to be accredited investors who can afford to lose their entire investment. And I’m a bit sad that the SecondMarket platform isn’t being tweaked a bit more, here: I’d love to see prices (but not the names of the buyers and sellers) being listed, in public, after every auction. After all, it’s not like the financial information about these banks is secret: go to the FDIC website, and you’ll find every last bit of information you could possibly want, on any bank in the country.

But still, anything which increases the universe of options available to the owners of small banks is going to help them at some level compete with the bigger banks. And that’s got to be a good thing.

When I approached Target to discuss Pole’s work, its representatives declined to speak with me… When I sent Target a complete summary of my reporting, the reply was more terse: “Almost all of your statements contain inaccurate information and publishing them would be misleading to the public. We do not intend to address each statement point by point.” The company declined to identify what was inaccurate. They did add, however, that Target “is in compliance with all federal and state laws, including those related to protected health information.”

When I offered to fly to Target’s headquarters to discuss its concerns, a spokeswoman e-mailed that no one would meet me. When I flew out anyway, I was told I was on a list of prohibited visitors. “I’ve been instructed not to give you access and to ask you to leave,” said a very nice security guard named Alex.

I’m sure that Target didn’t get its name from the way that it sends marketing materials and coupons customized to individual shoppers. But maybe the name is part of the reason why the company’s so wary about talking about the details of its marketing operations. A bigger part, though, is what I’ve called the uncanny valley of advertising — the way that we feel that we’re being spied on, when a big faceless corporation seems to know very intimate things about us. Like, for instance, the fact that we’re pregnant.

“If we send someone a catalog and say, ‘Congratulations on your first child!’ and they’ve never told us they’re pregnant, that’s going to make some people uncomfortable,” Pole told me. “We are very conservative about compliance with all privacy laws. But even if you’re following the law, you can do things where people get queasy.”

It’s incredibly important to Target that it have the ability to tell when you’re pregnant, before you have your child; Duhigg goes into great detail about why that’s the case, but it basically comes down to pregnancy being one of a very few opportunities for retailers to gain market share in the zero-sum game that is your basic household expenditure. As such, you can be sure that this kind of targeting is going to become increasingly commonplace, as retailers engage in a targeting war, trying harder and harder to capture the shopping dollars of new families and families-to-be.

And truth be told, it’s good for consumers to have lots of corporations falling over each other to offer us great prices and great, personalized, service. But while we love the prices and the service, we also like a little veneer which allows us to kid ourselves that we still have privacy:

“We have the capacity to send every customer an ad booklet, specifically designed for them, that says, ‘Here’s everything you bought last week and a coupon for it,’ ” one Target executive told me. “We do that for grocery products all the time.” But for pregnant women, Target’s goal was selling them baby items they didn’t even know they needed yet.

“With the pregnancy products, though, we learned that some women react badly,” the executive said. “Then we started mixing in all these ads for things we knew pregnant women would never buy, so the baby ads looked random. We’d put an ad for a lawn mower next to diapers. We’d put a coupon for wineglasses next to infant clothes. That way, it looked like all the products were chosen by chance.

“And we found out that as long as a pregnant woman thinks she hasn’t been spied on, she’ll use the coupons. She just assumes that everyone else on her block got the same mailer for diapers and cribs. As long as we don’t spook her, it works.”

This is going to be a very fine line, for years to come. So long as we don’t know that iPhone apps have access to our address book, everything’s fine — but then it’s revealed that Path has that information, and there’s a huge kerfuffle, and Apple ends up changing its policies.

Richard Falkenrath is pushing for a “right to be forgotten”, whereby individuals could ask companies to erase all the data and metadata that they possess about them. He says that it’s “essential to protect personal privacy in the age of pervasive social media and cloud computing”, but I think he’s importantly wrong. We’ve never really had personal privacy, we have less privacy than ever before, and extra legislation, while making a difference at the margins, is never going to return us to some mythical prelapsarian state where Big Brother knows nothing about us.

And indeed, few of us would want to return to that state. I get a steady stream of books and press releases here at Reuters, most of which I have very little interest in. But at least they’re a little bit targeted: they tend to be about business or finance, broadly. And some of them I actually like a lot, and end up in a blog post somehow. If I just got a random subset of all the books being published, or all the press releases being put out, my situation would be far worse than it is now. Because the people sending the books and releases know something about me, they attempt to send me only things I might conceivably be interested in. (At least in theory. Does anybody know how to unsubscribe to the TMZ mailing list?)

We’ve always lived in a world of personalization and targeting, from the maitre d’ who knows your name and favorite table at the fancy neighborhood restaurant, to the way in which corporations pay more money to advertise in the Wall Street Journal than they do to advertise in the New York Post, on the grounds that the Journal is more likely to reach rich professionals.

Nowadays, computers have made it increasingly possible to fine-tune personalization down to the individual level, where it can sometimes get “spooky”. (Although I’m convinced that spookiness increases with age: that in general young people are much less fazed by this kind of personalization than old people are.) If sophisticated corporations manage to make their marketing materials less spooky, I don’t think there’s going to be much popular opposition to continued targeting — at least not in this country. Germany is different: Germans care a lot about their privacy, and fight hard for it.

Here, however, I’ve never received a good answer to the “why should I care?” question — and certainly Falkenrath doesn’t provide one. All he does is hint at a vaguely dystopian scenario, and leave the rest to the reader’s imagination:

Picasa has a tagging feature that can tell Google where and when photographs were taken, and an advanced facial recognition feature that allows Google to identify individuals it has seen in one photo in any photo in the user’s digital library. Integrating just these three services with Google’s core search function could allow Google to locate individuals in virtually any digital photograph on the internet, and so derive where each user has been, when, with whom and doing what. Add YouTube to the mix, or Android smartphones, or whatever other database Google develops or buys – the implications are breathtaking.

If you’re pessimistically inclined, the breathtaking implications are negative. On the other hand, there are lots of positive potential implications, too. And the fact is that companies like Target and Google have no interest in becoming some kind of Hollywood corporate villain; that kind of behavior tends not to be nearly as profitable as screenwriters might think. So my feeling is that if they do become evil, we should cross that bridge when we come to it. As News International is discovering, genuine invasions of privacy can be fatal to any company. In the meantime, trying to legislate a “right to be forgotten” would probably cause much more harm than good.

While Merrill Lynch and LaMothe said that brokers are not forced to pitch loans and banking products, a number of Merrill advisers complain of feeling such pressure at a company that emphasizes cross-selling, one reason many former brokers have said they left Merrill over the past two years.

LaMothe says combining bank and brokerage under one roof “makes perfect sense,” but there are limits. “You cannot pressure good advisers to sell a product: they simply won’t do it. It’s almost counter-productive.”

This is interesting to me because Merrill’s brokers charge their clients a whopping $13.5 billion every year, or 0.90% of their total assets. And that fee, of course, comes over and above the fees charged by the fund managers chosen by those Merrill brokers and their clients. If you’re using Merrill mainly just to invest in index funds, then there’s a good chance that your brokerage fee is five times the amount of money you pay to the institutions actually managing your money.

Sometimes, it’s very obvious when your Merrill broker is making money from you. But other times, it’s not obvious at all — fancy derivatives products, or principal-protection strategies, or front-end loads on hedge funds, or just about any fund-of-funds, or all manner of other products, involve secret or semi-secret kickbacks straight to the broker who buys them. And those kickbacks work: brokers really are more likely to sell products they get a commission for selling, and given the choice between selling different share classes of the same fund, they’re pretty likely to choose the class which rewards themselves the most.

Yet at the same time I think that LaMothe is at least partially right when he says that it’s hard to pressure good advisers to sell a banking product. How can that be, when incentives clearly work with respect to investment products? I think there are three dynamics at play here.

First is the fact that much of what Bank of America wants brokers to cross-sell simply doesn’t come with commissions at all. If you don’t pay brokers extra to sell BofA products, then they’re not going to do so.

Second is the fact that the brokers might be loyal to Merrill Lynch, but they feel no great love for Bank of America. Ask them to push BofA products without earning their loyalty first, and they’ll feel used. Brokers have a wide range of products to choose from, many of which carry high commissions. They don’t all flock to the same high-commission products, though: some love this one, others love that one. With BofA products, there’s not much love to go around — and as a result, the brokers tend to avoid selling them.

Finally, and most importantly, brokers feel that they’re working for their clients more than they’re working for their employer. Its the clients who ultimately pay them, and they generally have a great relationship with that client. What’s more, just like nearly everybody else, brokers feel that they earn a reasonable sum for the work that they do. When they get a nice commission on a trade, they don’t feel that they’re ripping off their client, they just feel as though they’re being paid for doing their job. After all, they have to get paid somehow.

In a broker’s mind, earned commissions are all part of the ecosystem of serving clients. Cross-selling, by contrast, sets up a conflict of interest — not between the broker and the client, but between the client and the broker’s parent company. When selling a third-party product, the broker is working wholly for the client. But when selling BofA products like banking or insurance, it’s less obvious who the broker is working for. Being a salesman for a product that you’ve carefully chosen? That’s fine. Being a salesman for a product that you’ve had thrust upon you and you’re being told to sell? You’re going to feel much less happy about that.

Which is one reason why brokers find it so easy to flit from shop to shop, and why it’s so hard to get them to sell your own company’s products in particular. Bank of America might paradoxically find it easier to sell its products through independent, third-party brokers than through its own Merrill Lynch salesforce — just because the Thundering Herd hates being told what to do. And if you push it, the guy in charge is prone to “retire” at age 49, rather than follow your edicts.

To provide a bit of context here, look at the amount that the Greek economy has already shrunk: 16%. That compares to 20%, peak-to-trough, in Argentina, and 29% in the US in the Great Depression. But the big problem in Greece is that the worst economic effects of austerity haven’t even happened yet.

“On the current path – which is not sustainable in my view – we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It’s a disastrous crisis for them,” Dadush, a former senior World Bank official, said…

“They’re suffering. It’s nasty,” said Weisbrot, who has studied the lessons to be learned from economic crises in Latvia and Argentina. “If you could say with a reasonable probability that the worst was over, then that would be different. But you can’t say that. They’re in for a long nightmare.”

The point here is that both Europe and Greece need a light at the end of the tunnel. Without that, social unrest in Greece will only get worse, the credibility of its promises will continue to deteriorate, and the Europeans will be understandably reluctant to throw good money after bad. And right now that light does not exist. Greece probably can’t implement the austerity package it’s promising, and even if it does, GDP won’t start growing to the point at which its debt-to-GDP ratio will come down to a remotely sustainable level. Which brings me to El-Erian:

First, they should stop repeating the claim that there is no “Plan B.” Telling people that there is no alternative to a discredited policy merely pushes them either to resist an approach that does not work, or to opt for mayhem. Recent official remarks heard in Greece (“We must show that Greeks, when they are called on to choose between the bad and the worst, choose the bad to avoid the worst”) do little to engender hope.

The lesson of what happened in Argentina should be top of mind:

After the Argentine parliament approved yet another new austerity package, the IMF agreed to release its financing tranche. But it was too late to save a discredited approach, further undermining the Fund’s standing.

Indeed, rather than engendering confidence, Argentine citizens withdrew their bank deposits over the next few months. Capital flight accelerated. The government again failed to deliver on its policy commitments. Most important of all, social and political pressures mounted, reaching a tipping point.

One of the weirder aspects of the Greek crisis is the way in which deposits in Greek banks have not fled the country. Many have, but Greeks still have something in the region of €150 billion on deposit in Greek banks. (I’m pretty sure that non-Greek deposits in Greek banks are de minimis.) If history repeats itself — and there’s no reason to believe that it won’t — that’s going to change.

There will be some kind of muddle-through bailout deal which allows Greece to do a bond exchange before its €14 billion bond coupon comes due on March 20. But the new money coming into Greece from the Troika will be less than the amount of money flowing out of Greek banks, and the lack of credit and liquidity in the country will only exacerbate the current depression and increase the number and severity of riots. Eventually, Greece will tip, and will leave the euro in a chaotic manner. I’m thinking late summer.

That’s not a Plan B anybody really wants. Greece’s budget deficit doesn’t disappear when it exits the euro, which means that it will have no real choice but to print new drachmas to cover that deficit. (Certainly no one outside Greece is going to lend the government new money at that point.) As a result, there will be a spiral of devaluation and inflation in Greece. Nominal GDP growth never felt so bad.

Is there a Plan C? Is there a real alternative? I think that there probably isn’t. El-Erian talks in a vague way about “economic restructuring”, “institutional changes”, and “policy flexibility” — all of which is code for the kind of deep-seated economic reform that Germany went through under Gerhard Schroder. That involved a combination of falling real wages and popular unhappiness in the context of a fundamentally strong and growing economy running a large current-account surplus. It also took many years, without real guarantees that it was going to work.

Greece doesn’t have that kind of leadership, partly because its population has no good reason to believe that such reforms would work or be at all effective in increasing national competitiveness. On top of that, it’s trying to act from a position of weakness rather than strength, and in any case it simply doesn’t have the time to implement changes which involve a fundamental restructuring of the nation’s social compact, including the population’s willingness to pay taxes.

Which is why I feel that what we’re seeing right now is the playing-out of the endgame in Greece. It reminds me in a way of the fiscal debate within the Obama administration, where the Christy Romer faction wanted “naked stimulus” without worrying too much about cuts down the road, while the Peter Orszag faction wanted “coupled stimulus” where short-term spending was offset by long-term budget cuts and revenue hikes. Basically everybody in the administration wanted stimulus, of one form or another — but that’s exactly what they didn’t get.

Similarly, in Greece, if you look at the various players — bondholders, the European Commission, the Greek government, the Greek population — all of them want Greece to stay in the euro. I have a feeling they’re all going to be very, very disappointed.

The fact that the internet has a long memory is wonderful for magazines online, as Tom Standage of the Economist recently noted.

After years of locking the search engines out, now suddenly their whole archive is available. A three year old article about Iran, he said, does just as good a job of advertising what they are about and why you should be reading them as the ones form this week. He said it was “crucial” that content could be “sampled and shared on social media.”

Matt Yglesias, however, sees a downside here, as more and more great magazine pieces are available online, for free, in perpetuity:

The existence of this deep back catalog is great for readers, but not necessarily as rewarding for the forward-looking production of longform pieces. Each day—each hour, even—all previous “newsy” items become obsolete and the demand for new newsy items is robust. But the existing stock of well-hewn blocks of substantial prose is already very large and it no longer depreciates the way it did in print.

I don’t buy it: the long-term upside, to any publication, of producing more well-hewn blocks of substantial prose is real, and, well, substantial. Meanwhile, Yglesias’s downside is that there’s already so much good stuff out there that it’s somehow satiating demand for such material.

In reality, of course, the supply of attention, when it comes to long magazine articles, is far from fixed. Nowadays especially, in the days of Instapaper and Longreads, people are reading more long-form journalism, from more outlets, than they ever did before. And there’s no indication that the rise in long-form consumption will level off any time soon. The more that magazines feed that demand, the more the demand will rise, in a virtuous cycle. Meanwhile, people will read less SEO-optimized crap from Demand Media. This too is a good thing.

One of Nick Denton’s less celebrated innovations was the creation, with Lifehacker, of a blog which lives more through its archives than through the new content that it puts up every day. Yes, Lifehacker has many loyal readers keeping an eye on its new posts. But the real value there is in what you might call the back catalogue — all those timeless posts which get steady pageviews for months or years.

It’s the difference between recording a throwaway pop song and recording a Beethoven symphony — the symphony is a much more laborious and expensive proposition, but it will sell for years to come. Orchestras don’t stop recording Beethoven symphonies just because lots of other orchestras have been there already. And the difference between new long-form journalism and old long-form journalism is a lot bigger than the difference between a new recording of Beethoven 5 and an old recording of Beethoven 5.

The Volcker Rule is a noble and thoughtful effort to make the banking system safer in the long-term postfinancial crisis. Critics in the banking industry, however, say the new regulation comes with many embedded costs for the national and global economy.

Here’s where Mr. Volcker and I differ. He says: “Not so.” I say: “C’mon. It’ll cost the economy, at least in the short term.”

I’m with Volcker here. And the fallacy in Sorkin’s thinking is easy to see: he’s essentially eliding big banks, on the one hand, with the broad economy, on the other. Yes, Sorkin is right that the Volcker Rule comes with “significant costs”. But there’s a difference between costs to a handful of banks, and costs to the economy.

If and when prop trading leaves the big banks, those banks will make less money. That’s by design. But the money doesn’t just disappear. Insofar as trading is a zero-sum game, and it certainly has that component, lower profits at the big banks mean higher profits everywhere else. And insofar as trading takes place outside regulated banks, at hedge funds or small broker-dealers without access to the Fed discount window, some of the profits will simply move there, to small-enough-to-fail institutions.

In other words, there is a list of institutions which will be harmed by the Volcker Rule. Here it is: JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley. These institutions should get smaller. These institutions should be less profitable. There’s no reason to believe that when that happens, the economy as a whole will suffer.

There’s also the question of whether the Volcker Rule will hurt liquidity, and whether that would be entirely a bad thing. Sorkin happily parrots the rather ridiculous Sifma number saying that the costs of the rule could reach $350 billion. “Even half that number has to be considered substantial”, he writes, as though the best way of making a ridiculous number accurate is to simply divide it by two.

Sorkin quotes Volcker on the baseless “presumption that ever more market liquidity brings a public benefit”, but he shares that exact presumption, for no good reason. Where, exactly, is the public benefit in me being able to buy and sell stocks hundreds of times per second? Where is the benefit in bringing down trading costs to the point at which people stop thinking before they act? Liquidity is like a safety net: it allows people to feel free to make potentially stupid decisions, because they know they can always change their mind and reverse those decisions at any point. Until, of course, there’s a crisis, and correlations spike, and the safety net, just when you need it, isn’t there.

Sorkin worries that it will become “impossible, or at least, impossibly expensive” for banks to warehouse merchandise in the form of securities available for sale. He doesn’t, on the other hand, explain why that’s a bad thing. Why should commercial banks be America’s largest market-makers, with enough clout within Sifma and other industry forums that they can set the broad anti-Volcker agenda? There’s no good ex ante reason why that should be the case, and indeed commercial banks have only truly dominated the market-making world in the past few years, since Goldman Sachs and Morgan Stanley converted after Lehman went bust in 2008.

If you dig deeper into the complex needs of global corporations that are the clients of big banks these days,” writes Sorkin, doing his best Jamie Dimon impersonation, “they sometimes seek banks to make proprietary bets to help them.” Unpacking the pronouns here, I think that what Sorkin is saying is that somehow big corporations want banks to make proprietary bets, because banks’ proprietary bets somehow help those big corporations. I don’t see it — and neither does Volcker.

Yes, the Volcker Rule would hurt America’s biggest banks — and yes, those banks do have extremely large corporations as clients. Once the Volcker Rule is implemented, those extremely large corporations might find their Treasury needs best served by smaller brokerages. They might even see more competition for their dealflow, once the bigfooted giants are forced out of the game. There’s no reason to believe that the extra competition would also mean higher prices or wider spreads. So let’s concentrate on making the Volcker Rule as tough as possible, and stop worrying about its effect on Jamie Dimon’s annual bonus.

On the other hand, $5 billion is very small as a percentage of Facebook’s market capitalization. Here’s Allan Sloan:

If Facebook’s offering ends up being the advertised $5 billion, and the company’s stock market valuation is in the expected $75 billion to $100 billion range, it means that only 5 to 7 percent of the company’s shares will be available to public investors.

While there are all sorts of rationalizations for having such a small public offering relative to a company’s size, the real reason, as any Street insider will tell you, is to create an initial shortage of stock so that the share price runs up when public trading starts.

It’s not enough for Mark Zuckerberg & Co. to have created an amazing, incredibly valuable company over an incredibly short period. They feel the need to use this tacky market trick to drive up Facebook’s value even more.

Sloan has a point, here: it’s very rare for companies to go public while selling less than 10% of their stock. Here’s a chart from Thomson Reuters, showing the free float at IPO for all US issues from 1/1/2000 onwards which had a market capitalization at IPO of more than $1 billion.

As you can see, it’s very rare to go public with a float of less than 10% of the company: the average for tech companies is 19%, and the overall average is 26%.

And if you look at IPOs which raise more than $500 million, the percentages get bigger still: if you’re raising more than half a billion dollars, then tech companies end up with a free float of 34% of their company, on average, while overall, companies float 43% of their shares.

So, is Sloan right? Is Facebook’s small free float a “tacky market trick”?

My feeling is that it isn’t — and that it’s rather a function of the way in which Facebook stock is distributed. Since the company doesn’t really need to raise equity capital, the only other way to increase the free float is to persuade existing shareholders to sell their stock into the IPO. Mark Zuckerberg certainly doesn’t want to do that — to the contrary, he wants to retain as much stock and control as possible. And most of his fellow shareholders are similarly rich and fond of their stock, preferring to wait a while before selling.

In other words, what we’re seeing here is the natural consequence of what happens when the stock market essentially forces companies to be profitable before they go public. In the olden days, when companies went public because they needed the money, they would sell quite a lot of stock. Today, that’s no longer the case, especially in Silicon Valley, where capital-raising rounds are generally done privately, with VCs. If Facebook hadn’t been able to raise well over a billion dollars privately, then it might have gone public earlier, selling more of its stock in the process. But given the way that equity investing in early-stage companies has moved from the public to the private markets, what we’re seeing is pretty normal, and not really a tacky market trick at all.