At Megastores, Hagglers Find No Price Set in Stone
By MATT RICHTEL
SAN FRANCISCO — Shoppers are discovering an upside to the down economy. They are getting price breaks by reviving an age-old retail strategy: haggling.
A bargaining culture once confined largely to car showrooms and jewelry stores is taking root in major stores like Best Buy, Circuit City and Home Depot, as well as mom-and-pop operations.
Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing.
The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable.
“We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.
In the last year, she said, the store has adopted an “entrepreneurial spirit” campaign to give salespeople and managers more latitude on prices in order to retain customers.
The sluggish economy is punctuating a cultural shift enabled by wired consumers accustomed to comparing prices and bargaining online, said Nancy F. Koehn, a retail historian at the Harvard Business School.
Haggling was once common before department stores began setting fixed prices in the 1850s. But the shift to bargaining in malls and on Main Street is a considerable change from even 10 years ago, Ms. Koehn said, when studies showed that consumers did not like to bargain and did not consider themselves good at it. “Call it the eBay phenomenon,” Ms. Koehn said.
“The recession is helping to push these seedlings to the surface,” she added. “It’s a real turnabout on the part of the buyer and the seller.”
John D. Morris, an apparel industry analyst for Wachovia, said that the ailing economy was not necessarily forcing all retailers to negotiate. But he says he believes that when there is an opportunity for negotiation, the shopper has the upper hand.
“This is one of the periods where the customer is empowered,” Mr. Morris said. “The retailer knows that the customer is enduring tough times — and is more willing to be the one who blinks first in that stare-down match.”
While tough times give people more incentive to change their behavior, it is the wealth of information about products made available on the Internet that gives consumers the know-how to try it. People now can quickly amass information on product availability and pricing, helping them develop strategies to get the best deal.
Michael Roskell, 33, a technology project manager from Jersey City, N.J., said he and a friend from high school periodically visit electronics stores. While Mr. Roskell expresses interest in buying an item, his friend acts as though he is dissatisfied with the price and threatens to leave.
“We play good cop, bad cop,” Mr. Roskell said.
In February, he said, the friends got $20 off a pair of $250 speakers at 6th Avenue Electronics in the New York area. Earlier, he and the same friend negotiated to buy two 46-inch high-definition Sony televisions at P. C. Richard & Son, a New York-area electronics chain.
List price: $4,300. Price after negotiation: $3,305.50.
“My parents never did this,” Mr. Roskell said. “But once you get it, you realize there’s a whole economy built on this.”
The strategy can even work when buying pants. At least it did for David Achee of Maplewood, N.J., who said he went to a Polo Ralph Lauren store in the SoHo neighborhood of Manhattan last month and became interested in a pair of pants on the clearance rack for $75. He told the salesperson that he had seen a similar pair on the Internet for $65, adding that he thought the pair on the rack looked worn (even though he did not really think so). He got the pants for around $50, he said.
Among his other tactics, he said, he sometimes threatens to walk out of a store and go to a competitor, as he did recently to get a price break on a drum set at a music store. But, mainly, he relies on researching prices and coming armed with information — prices he finds on the Internet and in ads from competitors.
“You can negotiate, but you have to do your research,” said Mr. Achee, who works for the Port Authority of New York and New Jersey. “When I’m bargaining, I’m bargaining with information.”
Information from the Internet helped Amber Kendall, 24, and her husband, Matt, when they shopped for a camera last October. The couple, who live in Boston, found the Canon camera they wanted online for $350, then used the Internet price to bargain with Ritz Camera, where the price was $400. Then they used the Ritz Camera offer to get the same price at Microcenter, where they preferred the warranty offer.
The technological influences are not just on the consumer side. Retail industry analysts said corporate retailers have begun using computer systems that let them do real-time pricing and profit analysis. Such systems tell a company what price it can set and still make money, and they illuminate the trade-off between lowering prices and raising sales volumes, said Andy Hargreaves, a retail industry analyst with Pacific Crest Securities.
Mr. Hargreaves did a little negotiating himself recently. At Best Buy last November, he bargained down the price of a 50-inch Samsung plasma television.
“They gave me a number. I gave them another number, and he gave me a final number,” he said, noting that he got a $100 price break in addition to the $200 sale discount. “A lot of people don’t realize you can go into Best Buy and ask them for a lower price.”
Frederick Stinchfield, 23, was a Best Buy salesman in Minnetonka, Minn., until last January. He said about one-quarter of customers tried to bargain. Much of the time, he said, he was able to oblige them, particularly in circumstances where a customer buying electronics (like a camera) also bought an accessory (like a camera bag) with a higher markup. He said the cash registers at Best Buy were set up so that prices could be reset at checkout.
Salespeople and managers had the latitude to drop prices, though some were more likely to do so than others.
His advice for bargainer hunters? “If you get denied once, go looking for someone else who looks nice,” said Mr. Stinchfield, who now works for the federal government in Washington. He added: “Come armed with information, and you will be rewarded.”
Priya Raghubir, a marketing professor at the Haas School of Business at the University of California, Berkeley, said that retailers willing to haggle were making a calculated gamble that acceding to lower prices means establishing customer loyalty. The retail mantra is “customer lifetime value,” meaning any single sale might not be that profitable, but an enduring relationship with a shopper would be.
There is just one problem with the theory, Ms. Raghubir said. It does not prove true over time.
Rather than retaining customers, the rise in haggling is making shoppers highly price-conscious and loyal ultimately to the least expensive offer, not to a brand or a retailer.
Home Depot, among others, begs to differ. Ms. Gallagher, the company spokeswoman, said that by allowing salespeople and store managers to make some pricing decisions, the company was creating a friendly environment that feels more like a local store than a monolithic corporate superstore. (She declined to say how much leeway individual salespeople or managers have.)
Ms. Raghubir says that retailers are realizing that customers are going to keep pressing them on price, because whatever reticence customers had about bargaining has evaporated.
“In the past, when you tried to get yourself a deal and it was an embarrassing thing — the kind of thing you did if you couldn’t afford to pay,” she said. “Now it’s about being a smart shopper.”
Monday, March 31, 2008
Saturday, March 29, 2008
More On Chase and the Zippy Tricks
CR posted this shocker yesterday, a memo with a Chase logo attached (which doesn't mean much in these copy & paste days), sent via e-mail to mortgage brokers in what appears to be a "package" of "training documents," that provides tips on how to "cheat" and "trick" Zippy, Chase's AUS (automated underwriting system), into approving loans it would not normally approve. (Or, possibly, allowing loans to be documented or priced in a way they would not have been had the loan been submitted properly. It's hard to say exactly.)
I am not especially interested in the debate over whether it was "official Chase policy" (undoubtedly it was not) or whether it was a "joke" started by some wag at Chase ("this is how we oughta be training the brokers, ha ha!"). My own hunch is that it did start out as a joke, but there was at least one Account Executive at Chase who either didn't "get" the joke--which is scary--or who didn't have the sense to realize that certain forms of satire shouldn't leave the building.
But that's the thing: it works for me as a "joke," of the black humor deadpan sort, because, well, it isn't that far off "official policy." "Official policy" is simply couched in ponderous language, hedged about with earnest exhortations not to "misuse" the system that everyone ignores, and mostly "functional" in the sense that it covers certain raw acres of corporate butt, not in the sense that it really communicates clearly to a worker-bee what you're actually supposed to do when certain things--cough, cough--cross your desk.
I say this with complete confidence even though I haven't read Chase policy documents for years, and I have never read internal use only Chase policy documents. I have read hundreds of documents produced by dozens of institutional lenders, wholesalers, and aggregators describing credit policy and acceptable origination practices. I have written quite a few of them, to tell the truth. For that reason I have been in plenty of arguments over the years about those documents, since I have this thing about using language people can actually understand, explaining things clearly, and making policy documents actually useful to everyday operations rather than merely having them around in a file cabinet in case the regulators show up, and entirely ignored by everyone in-house unless and until that day arrives. So I am not speaking with actual detailed knowledge of Chase policy or the likely tone or content of Chase policy documents in particular. I am generalizing based on years and years of having to wade through that crap because no one else will.
What I really got interested in was not where, exactly, this document came from, but why, precisely, it says what it says. I mean, you can see this as a Chase Account Executive (or whoever authored it) simply baldly encouraging fraudulent misrepresentation, and that of course is what it is. But you also have to see that it does appear to require some misrepresentation to get past Zippy in some respects. That much is to Chase's credit.
Also, the way these things tend to work is that the "cheats and tricks" that people come up with--and no, this isn't the only one out there by a long shot, it's just the only one I know of so far that got to a reporter--tend to focus on routine problems. Nobody writes "cheat sheets" to deal with obscure complex things that only arise on one out of 200 loan applications. People write "cheat sheets" to deal with the problems you are most likely to have. And yes, I am using this term "cheat sheet" in its commonplace sense of a "dumbed down" policy or procedure, a set of "short cuts." The term has always been ambiguous: is a "cheat sheet" directions for breaking the rules, or just directions for following them faster and more easily? "Efficiency" and "user friendliness" have always been in danger of converging on the unethical. This is not a new problem. Perhaps our apparently willful lack of attention to this problem over the last several years is what was, in fact, different this time.
Besides the "most common problems," I have often found "cheat sheets" appearing in contexts where it's not so much that the issue at hand is "common," it's that this particular lender has a "thing" about that particular issue. If you ask a bunch of industry participants who are willing to tell you the truth, I suspect you'll find a high degree of consensus on what the "preoccupations" or "hot buttons" for any given wholesaler are. "Everybody knows," the story will go, that X is touchy about gift funds and Y is the hardest to deal with on short-form appraisals and Z isn't the place to go if you want a high-rise condo loan approved. And so on.
That kind of "eccentricity" is less common than it used to be, given nearly universal securitization of loans (which tends to "homogenize" the industry and make lenders willing to write loans they wouldn't touch for their portfolio) and competitive pressures that spawn "races to the bottom" all over the place. In the early years of the boom (until 2005 or so) I used to actually keep spreadsheets in which I tracked policy of ten major correspondent/wholesalers on a couple of dozen selected issues. I did not necessarily select the "common ones"; I was precisely interested in the more offbeat. Like condos with less than four total units in the project, or the rarer forms of temporary buydowns, or non-arm's-length transactions, or foreign national borrowers. ("Foreign national" in this context does not mean undocumented immigrant. It means someone who is not only not a U.S. citizen, but also not even a U.S. resident.) In other words, "niche" stuff that was once simply not allowed at all in the "prime" world, but which increasingly crept into "expanded criteria" programs--the precursor of what you all know as "Alt-A"--and then even into so-called "prime jumbo" or "prime non-agency."
What my little spreadsheet showed was that, over time, we went from an environment in which "go to Lender X if you have a small condo project" was the way it worked, to "just about everyone does small condo projects these days, so why shouldn't we?" It also showed that certain things were "migrating" from "expanded criteria" programs into "mainstream" programs. The race was on. Back in 2005 I was arguing strenuously that it was a race to the bottom, but that was of course a minority view.
Way too many people were convinced that we had the technology that would allow us to "race to the top." The idea was that in the Days of the Dinosaurs, doing 2-flats turned into condos or non-arm's-length deals or what have you was really very risky, but not any more, because now we have all these computer models that can much more finely-tune our risk assessments. Plus there was always the supplementary argument that hey! if someone like Chase is willing to do it, that must mean it's "respectable." That last argument wasn't always stated in such an unvarnished fashion, but that was the drift.
So this brings us back to the Zippy tricks, and the specific content of the infamous memo. If you read it from a certain angle--just for the sake of analytical clarity, not in aid of "defending" what is obviously indefensible--you can see it as some evidence that Chase's system, Zippy, has been correctly programmed to weed out a couple of serious problems:
1. Unstable income. The "trick" of putting all income in "base," instead of breaking it out (as the application form is designed to get you to do) into base salary, bonus, commissions, etc., is partly about getting the AUS to "let you by" with only a paystub to verify current income, if that. This is because it has been recognized since about the end of the last Ice Age that base salaries tend to be fairly stable, but bonuses and commissions tend to be rather volatile. This "other" income is, traditionally, used to qualify borrowers only when they can verify a history of having received it regularly, typically for a minimum of two years, and prospects for continuing to receive it, typically for at least the next three years. It is difficult to verify prospects; in most cases lenders digged so deeply into the past history of the income because that was the best clue to its likely continuation. The theory, for instance, was that an employer who regularly paid bonuses for the last several years was more likely to continue to pay them in the future than an employer who only just paid its first bonus a few weeks ago. Of course, stability of income projecting into the future was important because, well, we expected loans to repay out of income, not refinance money or sale of the home.
You can, if you like, theorize that Zippy has some "rules" built into it that involve a different set of parameters or a higher degree of scrutiny or possibly even a different "rate sheet" when the loan has substantial qualifying income other than base salary. It should. So the instructions to defeat that purpose by lumping everything into "base" is not just saving some idiot some keystrokes. And it's not a trivial thing involving some fussbudget who wants the forms filled out properly for no real reason. There's a real reason here.
2. Gift funds. We have been banging on for years now about borrowers having no "skin in the game." Lenders need to know--have always required to know--what the source of the down payment money is. It isn't just that loans with gifted down payments default more often, although they do. It's also that a lot of fraudulent "straw borrower" deals require "gift funds" to work out. Zippy was programmed to require this information for very good reasons.
3. "Inching up" income. Well, that one's pretty obvious. It is, however, the point at which I for one conclude that Zippy was probably not programmed correctly.
The fact of the matter is that an AUS should simply ignore DTI or cash reserve calculations when income or assets are or can be unverified. In fact, using DTI or months of reserves in your underwriting decision will inevitably produce worse results on a "stated/stated" loan than ignoring them will. They mislead you. I have known good, experienced, savvy human underwriters to fall into this trap, in spite of themselves: they see those "nice-looking" numbers and can't stop themselves from using them as a "compensating factor" on the loan.
There are people in the industry who think that "NINAs" are "worse than" stated income/stated asset loans, but I have never been one of them. What distinguishes them is that in a NINA, you don't even state numbers. You literally leave those boxes on the application blank. The loan is qualified with a credit report and an appraisal.
Now, I'll agree that NINAs are stupid--no problem there. But they're less stupid than "stated" deals. They don't "distract" you with made-up numbers. Actually, they often result in much better analysis of the appraisal and the credit report than you get in a "stated" deal. After all, the appraisal and the credit report are all you got in a NINA: you work 'em over. In the "stated" world people--and apparently some computers--keep getting sidetracked by those unverified numbers.
So I got the impression, for what it's worth, that Zippy is a mixed bag: it seems to have some responsible programming and some stupid programming. As I remarked in the comments to yesterday's post, the fact that it doesn't flash red lights and immediately refer the loan to the fraud-detection squad when it notices that a file keeps getting "resubmitted" with "refreshed" income and asset numbers is a huge problem. If this AUS really does allow multiple resubmissions with increasing stated income each time without setting off the red fraud flags, this is a very big deal for Chase. I'm here to suggest that Chase's regulators need to look into that. As I said, given the chance that the memo is a "joke," it's possible that the thing handles re-runs better than it sounds like it does. But Chase should have to answer this question now that the memo is on the table.
The final question for me, then, is what if anything is likely to be "unique" to Chase here. My answer is "not much." This just isn't in the same class as small condo projects or foreign nationals. We're talking Underwriting 101 stuff that brokers can, apparently, defeat by just putting a number in the wrong data-field or putting a "no" in the gift funds field or getting the system to keep "recalculating" DTI or cash reserves until you have forced it to reveal to you where its cutoffs are.
We all know why people do those things. What somebody needs to explain to me is how, after all this time, it's still so easy to do it. Where are the internal plausibility checks? Where is the "behavioral" logic that notices not just the content of the datafile but the manner in which it was submitted? Where's the basic randomly-selected pre-closing QC that snatches files out of the AUS queue and matches up the data submitted to the AUS with a quick phone call to the borrower?
Where, in other words, is the "high" tech? We've had AUS since the green-screen mainframer days of the 80s, kids. Thirty years down the road and these things are as easy to fool as Barbie's My First Laptop? After all the money these lenders have spent over the years on IT? There's something else that doesn't add up here besides a borrower's paystubs.
Technology aside, where, we also have to ask, are the "real" writers of policy and procedural and training documents? My own sense is that you find "cheat sheets" in companies that don't provide "real sheets" that are usable or comprehensible or updated or easily available on the website. We are, you know, in the "cut & paste" days. It's just no longer difficult to provide your people--or your broker clients--with the "real thing." Anyone who used to prepare policy with a Selectric and an old slow photocopier has a right, I think, to ask just what we're getting out of the "information" part of the "IT revolution." We just shouldn't have to have "cheat sheets" any longer; the "search" button takes care of the difficulties of looking things up. It matters, and it matters because asking people to look at the "real" policy instead of some dumbed-down "cheat sheet" written up by an Account Executive is not too much to ask. You think you will ever control for unethical behavior when you don't even demand moderate amounts of effort?
The whole industry has some explaining to do.
I am not especially interested in the debate over whether it was "official Chase policy" (undoubtedly it was not) or whether it was a "joke" started by some wag at Chase ("this is how we oughta be training the brokers, ha ha!"). My own hunch is that it did start out as a joke, but there was at least one Account Executive at Chase who either didn't "get" the joke--which is scary--or who didn't have the sense to realize that certain forms of satire shouldn't leave the building.
But that's the thing: it works for me as a "joke," of the black humor deadpan sort, because, well, it isn't that far off "official policy." "Official policy" is simply couched in ponderous language, hedged about with earnest exhortations not to "misuse" the system that everyone ignores, and mostly "functional" in the sense that it covers certain raw acres of corporate butt, not in the sense that it really communicates clearly to a worker-bee what you're actually supposed to do when certain things--cough, cough--cross your desk.
I say this with complete confidence even though I haven't read Chase policy documents for years, and I have never read internal use only Chase policy documents. I have read hundreds of documents produced by dozens of institutional lenders, wholesalers, and aggregators describing credit policy and acceptable origination practices. I have written quite a few of them, to tell the truth. For that reason I have been in plenty of arguments over the years about those documents, since I have this thing about using language people can actually understand, explaining things clearly, and making policy documents actually useful to everyday operations rather than merely having them around in a file cabinet in case the regulators show up, and entirely ignored by everyone in-house unless and until that day arrives. So I am not speaking with actual detailed knowledge of Chase policy or the likely tone or content of Chase policy documents in particular. I am generalizing based on years and years of having to wade through that crap because no one else will.
What I really got interested in was not where, exactly, this document came from, but why, precisely, it says what it says. I mean, you can see this as a Chase Account Executive (or whoever authored it) simply baldly encouraging fraudulent misrepresentation, and that of course is what it is. But you also have to see that it does appear to require some misrepresentation to get past Zippy in some respects. That much is to Chase's credit.
Also, the way these things tend to work is that the "cheats and tricks" that people come up with--and no, this isn't the only one out there by a long shot, it's just the only one I know of so far that got to a reporter--tend to focus on routine problems. Nobody writes "cheat sheets" to deal with obscure complex things that only arise on one out of 200 loan applications. People write "cheat sheets" to deal with the problems you are most likely to have. And yes, I am using this term "cheat sheet" in its commonplace sense of a "dumbed down" policy or procedure, a set of "short cuts." The term has always been ambiguous: is a "cheat sheet" directions for breaking the rules, or just directions for following them faster and more easily? "Efficiency" and "user friendliness" have always been in danger of converging on the unethical. This is not a new problem. Perhaps our apparently willful lack of attention to this problem over the last several years is what was, in fact, different this time.
Besides the "most common problems," I have often found "cheat sheets" appearing in contexts where it's not so much that the issue at hand is "common," it's that this particular lender has a "thing" about that particular issue. If you ask a bunch of industry participants who are willing to tell you the truth, I suspect you'll find a high degree of consensus on what the "preoccupations" or "hot buttons" for any given wholesaler are. "Everybody knows," the story will go, that X is touchy about gift funds and Y is the hardest to deal with on short-form appraisals and Z isn't the place to go if you want a high-rise condo loan approved. And so on.
That kind of "eccentricity" is less common than it used to be, given nearly universal securitization of loans (which tends to "homogenize" the industry and make lenders willing to write loans they wouldn't touch for their portfolio) and competitive pressures that spawn "races to the bottom" all over the place. In the early years of the boom (until 2005 or so) I used to actually keep spreadsheets in which I tracked policy of ten major correspondent/wholesalers on a couple of dozen selected issues. I did not necessarily select the "common ones"; I was precisely interested in the more offbeat. Like condos with less than four total units in the project, or the rarer forms of temporary buydowns, or non-arm's-length transactions, or foreign national borrowers. ("Foreign national" in this context does not mean undocumented immigrant. It means someone who is not only not a U.S. citizen, but also not even a U.S. resident.) In other words, "niche" stuff that was once simply not allowed at all in the "prime" world, but which increasingly crept into "expanded criteria" programs--the precursor of what you all know as "Alt-A"--and then even into so-called "prime jumbo" or "prime non-agency."
What my little spreadsheet showed was that, over time, we went from an environment in which "go to Lender X if you have a small condo project" was the way it worked, to "just about everyone does small condo projects these days, so why shouldn't we?" It also showed that certain things were "migrating" from "expanded criteria" programs into "mainstream" programs. The race was on. Back in 2005 I was arguing strenuously that it was a race to the bottom, but that was of course a minority view.
Way too many people were convinced that we had the technology that would allow us to "race to the top." The idea was that in the Days of the Dinosaurs, doing 2-flats turned into condos or non-arm's-length deals or what have you was really very risky, but not any more, because now we have all these computer models that can much more finely-tune our risk assessments. Plus there was always the supplementary argument that hey! if someone like Chase is willing to do it, that must mean it's "respectable." That last argument wasn't always stated in such an unvarnished fashion, but that was the drift.
So this brings us back to the Zippy tricks, and the specific content of the infamous memo. If you read it from a certain angle--just for the sake of analytical clarity, not in aid of "defending" what is obviously indefensible--you can see it as some evidence that Chase's system, Zippy, has been correctly programmed to weed out a couple of serious problems:
1. Unstable income. The "trick" of putting all income in "base," instead of breaking it out (as the application form is designed to get you to do) into base salary, bonus, commissions, etc., is partly about getting the AUS to "let you by" with only a paystub to verify current income, if that. This is because it has been recognized since about the end of the last Ice Age that base salaries tend to be fairly stable, but bonuses and commissions tend to be rather volatile. This "other" income is, traditionally, used to qualify borrowers only when they can verify a history of having received it regularly, typically for a minimum of two years, and prospects for continuing to receive it, typically for at least the next three years. It is difficult to verify prospects; in most cases lenders digged so deeply into the past history of the income because that was the best clue to its likely continuation. The theory, for instance, was that an employer who regularly paid bonuses for the last several years was more likely to continue to pay them in the future than an employer who only just paid its first bonus a few weeks ago. Of course, stability of income projecting into the future was important because, well, we expected loans to repay out of income, not refinance money or sale of the home.
You can, if you like, theorize that Zippy has some "rules" built into it that involve a different set of parameters or a higher degree of scrutiny or possibly even a different "rate sheet" when the loan has substantial qualifying income other than base salary. It should. So the instructions to defeat that purpose by lumping everything into "base" is not just saving some idiot some keystrokes. And it's not a trivial thing involving some fussbudget who wants the forms filled out properly for no real reason. There's a real reason here.
2. Gift funds. We have been banging on for years now about borrowers having no "skin in the game." Lenders need to know--have always required to know--what the source of the down payment money is. It isn't just that loans with gifted down payments default more often, although they do. It's also that a lot of fraudulent "straw borrower" deals require "gift funds" to work out. Zippy was programmed to require this information for very good reasons.
3. "Inching up" income. Well, that one's pretty obvious. It is, however, the point at which I for one conclude that Zippy was probably not programmed correctly.
The fact of the matter is that an AUS should simply ignore DTI or cash reserve calculations when income or assets are or can be unverified. In fact, using DTI or months of reserves in your underwriting decision will inevitably produce worse results on a "stated/stated" loan than ignoring them will. They mislead you. I have known good, experienced, savvy human underwriters to fall into this trap, in spite of themselves: they see those "nice-looking" numbers and can't stop themselves from using them as a "compensating factor" on the loan.
There are people in the industry who think that "NINAs" are "worse than" stated income/stated asset loans, but I have never been one of them. What distinguishes them is that in a NINA, you don't even state numbers. You literally leave those boxes on the application blank. The loan is qualified with a credit report and an appraisal.
Now, I'll agree that NINAs are stupid--no problem there. But they're less stupid than "stated" deals. They don't "distract" you with made-up numbers. Actually, they often result in much better analysis of the appraisal and the credit report than you get in a "stated" deal. After all, the appraisal and the credit report are all you got in a NINA: you work 'em over. In the "stated" world people--and apparently some computers--keep getting sidetracked by those unverified numbers.
So I got the impression, for what it's worth, that Zippy is a mixed bag: it seems to have some responsible programming and some stupid programming. As I remarked in the comments to yesterday's post, the fact that it doesn't flash red lights and immediately refer the loan to the fraud-detection squad when it notices that a file keeps getting "resubmitted" with "refreshed" income and asset numbers is a huge problem. If this AUS really does allow multiple resubmissions with increasing stated income each time without setting off the red fraud flags, this is a very big deal for Chase. I'm here to suggest that Chase's regulators need to look into that. As I said, given the chance that the memo is a "joke," it's possible that the thing handles re-runs better than it sounds like it does. But Chase should have to answer this question now that the memo is on the table.
The final question for me, then, is what if anything is likely to be "unique" to Chase here. My answer is "not much." This just isn't in the same class as small condo projects or foreign nationals. We're talking Underwriting 101 stuff that brokers can, apparently, defeat by just putting a number in the wrong data-field or putting a "no" in the gift funds field or getting the system to keep "recalculating" DTI or cash reserves until you have forced it to reveal to you where its cutoffs are.
We all know why people do those things. What somebody needs to explain to me is how, after all this time, it's still so easy to do it. Where are the internal plausibility checks? Where is the "behavioral" logic that notices not just the content of the datafile but the manner in which it was submitted? Where's the basic randomly-selected pre-closing QC that snatches files out of the AUS queue and matches up the data submitted to the AUS with a quick phone call to the borrower?
Where, in other words, is the "high" tech? We've had AUS since the green-screen mainframer days of the 80s, kids. Thirty years down the road and these things are as easy to fool as Barbie's My First Laptop? After all the money these lenders have spent over the years on IT? There's something else that doesn't add up here besides a borrower's paystubs.
Technology aside, where, we also have to ask, are the "real" writers of policy and procedural and training documents? My own sense is that you find "cheat sheets" in companies that don't provide "real sheets" that are usable or comprehensible or updated or easily available on the website. We are, you know, in the "cut & paste" days. It's just no longer difficult to provide your people--or your broker clients--with the "real thing." Anyone who used to prepare policy with a Selectric and an old slow photocopier has a right, I think, to ask just what we're getting out of the "information" part of the "IT revolution." We just shouldn't have to have "cheat sheets" any longer; the "search" button takes care of the difficulties of looking things up. It matters, and it matters because asking people to look at the "real" policy instead of some dumbed-down "cheat sheet" written up by an Account Executive is not too much to ask. You think you will ever control for unethical behavior when you don't even demand moderate amounts of effort?
The whole industry has some explaining to do.
Chase Mortgage leaked memo shows "cheats and tricks" used to give out unqualified mortgages
Barry sez, "An internal memo, explaining how to beat the Mortgage Loan Computer System (Zippy) at JPM Chase was leaked to the Portland Oregonian. The memo gives advice for fooling the system to get otherwise unqualified borrowers approved for mortgages:"
An internal memo, explaining how to beat the Mortgage Loan Computer System (Zippy) at JPM Chase was leaked to the Portland Oregonian.
The memo gives advice for fooling the system to get otherwise unqualified borrowers approved for mortgages:
3 "handy steps" for getting a questionable loan approved by JPM Chase's automatic system:
1. Lump all of an applicant's compensation as the applicant's base income, rather than breaking out commissions, bonuses and tips.
2. Do not disclose use of gifts for down payments.
3. If all else fails, simply inflate the applicant's income. "Inch it up $500 to see if you can get the findings you want. Do the same for assets.
An internal memo, explaining how to beat the Mortgage Loan Computer System (Zippy) at JPM Chase was leaked to the Portland Oregonian.
The memo gives advice for fooling the system to get otherwise unqualified borrowers approved for mortgages:
3 "handy steps" for getting a questionable loan approved by JPM Chase's automatic system:
1. Lump all of an applicant's compensation as the applicant's base income, rather than breaking out commissions, bonuses and tips.
2. Do not disclose use of gifts for down payments.
3. If all else fails, simply inflate the applicant's income. "Inch it up $500 to see if you can get the findings you want. Do the same for assets.
Wednesday, March 26, 2008
Top 10 Rogue Traders
Top 10 Rogue Traders
By jfrater
A rogue trader is a trader who acts independently of others - and, typically, recklessly - usually to the detriment of both the clients and the institution that employs him or her. In most cases this type of trading is high risk and can create huge losses.
“Since the average dealer now sits at a desk straight out of the Space Shuttle - and in many cases is relatively inexperienced and working under considerable pressure - mistakes are inevitable.
In May last year, London’s FTSE 100 index dropped by more than 2%, after a trader typed £300m, instead of £30m, while selling a parcel of shares.
In 1998, in the biggest incident of its kind ever, a Salomon Brothers trader mistakenly sold £850m-worth of French government bonds, when he carelessly leaned on his keyboard.
And at the end of 2001, shares in Exodus, a bankrupt internet firm, jumped by 59,000% when a rogue trader accidentally bid $100 for its shares, at a time when its value was 17 cents.” (BBC)
This is a list of the top 10 rogue traders, in no particular order.
10
Jerome Kerviel
Societe Generale’s Delta One
Rogue trader Jerome Kerviel was a quiet loner, whose disastrous deals on the European markets cost his bank a massive £3.5 billion. The more money 31-year-old Kerviel lost the more he gambled - which would have earned him the title of an incompetent mug in conventional betting circles. But this gambler’s losses were on an epic scale - dwarfing the £700 million fraud by British trader Nick Leeson, who broke Barings Bank in London in 1995.
While some branded Kerviel an idiot, one of France’s top bankers dubbed him a “genius of fraud” for the way he had managed to cover his tracks and bypass his bank’s checks. In a breathtaking understatement, one of Kerviel’s bosses at the French bank Societe Generale said he was “not one of our stars”. His huge losses on the Delta One trading desk not only cost his bank a mega-fortune, they were blamed for sending share prices crashing around the world.
Ironically, Kerviel, who earned £70,000 a year, was said to have made nothing personally from his massive scam. An insider at Societe Generale said: “What is completely unbelievable is that this person didn’t do it for his personal benefit. He didn’t get anything from it.” The glamorous world of high finance was a far cry from Kerviel’s private life, which was said to have disintegrated after his father died and his girlfriend dumped him.
Nick Leeson
Barings Bank
The best-known rogue trader is Nick Leeson, who bankrupted British bank Barings in 1995. Barings collapsed after Mr Leeson, the bank’s Singapore general manager of futures trading, lost £860m - then worth $1.38bn - on Asian futures markets, wiping out the bank’s cash reserves.
The company was bought for £1 after being in business for more than 230 years. After going on the run, Mr Leeson was jailed for four years in Singapore’s Changi prison. He was released in 1999 and wrote a bestseller, Rogue Trader, now a movie starring Ewan McGregor.
Mr Leeson is now chief executive of Irish football club Galway United.
Toshihide Iguchi
Daiwa Bank
The president of Japan’s Daiwa Bank received a particularly nasty shock on July 13 1995. Toshihide Iguchi, one of its senior US executives, confessed in a 30-page letter that he had lost $1.1bn through unauthorised bond trading.
Like Leeson and Rusnak, Iguchi ran up the losses over several years. Having risen from the back offices to become a trader in 1984, a lack of segregation within his division meant he could hide his losses from his superiors while he tried, and failed, to trade back to profit.
Following his confession, it emerged that he had conducted the cover-up for over a decade, falsifying some 30,000 trading slips. Having once been seen as the golden boy of the department, in 1996 he was jailed for four years and fined $2.6m.
In court, he told the judge that his life was filled with guilt, fear and deception after 11 years trying to recover his losses. Interviewed in jail, Iguchi said he had seen his earlier actions as merely a violation of internal rules. “I think all traders have a tendency to fall into the same trap. You always have a way of recovering the loss”, he told Time magazine.
Daiwa was also penalised heavily. The Federal Reserve ordered it to end all of its operations in America, leading to a sale of most of its US assets in January 2006.
7
Liu Qibing
Chinese Metals Trader
Chinese metals trader Liu Qibing disappeared in 2005 after betting wrongly that copper prices were going to fall and amassing huge losses of 0.2bn USD.
He was thought to be a copper dealer for the Chinese State Reserve Bureau at the London Metals Exchange. However, the Chinese State Reserve Bureau denied Mr Liu’s existence - despite LME traders saying they knew him as China’s main copper trader.
6
John Rusnak
Allied Irish Bank
Rusnakj
In 2002, US currency trader John Rusnak was charged with covering up $691m (£474m) of trading losses so that he could boost his own earnings. He was indicted by a federal grand jury on charges of bank fraud, false entry in bank records and aiding and abetting.
The indictment followed a four-month investigation into trading at Allfirst Financial, a subsidiary of Allied Irish Bank (AIB), from 1997 to 2001. Prosecutors said the trader did not actually profit from the trading losses, mostly on the Japanese yen.
He racked up and hid losses of $691m while leading a bizarre double life. Regarded as a quiet and unassuming family man, he invented aliases and fabricated documents to cover up a growing financial hole from bad bets on currencies, particularly Japanese yen.
The FBI described the case as “the largest bank fraud in the US in the last decade.
5
Yasuo Hamanaka
Suitomo
Less well-known, but financially large was the £1.3bn blown away by Yasuo Hamanaka, a metals trader at Japanese conglomerate Sumitomo. Mr Hamanaka, known as Mr Five Per Cent on account of his share of the world copper market, was jailed for eight years in 1996 after admitting to a 10-year career of unauthorised dealing. He had forged the signatures of two of his superiors in letters written to foreign dealers.
4
Peter Young
Morgan Grenfell
Peter Young was a fund manager at City bank Morgan Grenfell, which was later acquired by Deutsche Bank. In 1996, Mr Young was revealed to have bilked £220m from the funds he ran, thanks to a series of unauthorised investments he concealed.
The case returned to the headlines when Mr Young appeared at City of London Magistrates’ Court wearing a woman’s jumper and dress - and was eventually found unfit to stand trial.
3
Brian Hunter
Amaranth Advisors
Brian Hunter was a Canadian based natural gas trader for the now closed Amaranth Advisors hedge fund. Amaranth, which had over $9 billion in assets, collapsed in 2006 after Hunter’s gamble on natural gas futures market went bad.
Amaranth and Hunter have been accused by the Commodity Futures Trading Commission of conspiring to manipulate natural gas prices.
2
The “Fat-Fingered” Mizuho Trader
A Mizuho Securities trader sold 610,000 shares in job recruiting company J-Com Co. for 1 yen apiece, instead of an intended sale of 1 share at 610,000 yen. Mizuho said it was unable to cancel the order, causing it to lose about $340 million. The mistake was attributed to the “fat-finger” syndrome, shorthand for gaffes made when traders hit the wrong button on a keyboard and lose a bundle.
The Tokyo stock exchange later acknowledged that a glitch in its system made it impossible to cancel the trade. Mizuho and the exchange have discussed sharing some of the losses, but have so far failed to reach an agreement.
1
The Hunt Brothers
Nelson Bunker Hunt and William Herbert Hunt bought more than 100 million ounces of silver bullion in 1979 and 1980, causing silver prices to soar to a record of more than $50 an ounce before a sharp plunge.
After the crash, the brothers were left with silver obligations of $1.75 billion and a silver hoard of 59 million ounces valued then at $1.2 billion, indicating a loss of $550 million. The Hunts, whose fortune was once estimated at $6 billion, filed for bankruptcy protection in 1988.
Bonus
Gordon Brown
Prime Minister of the United Kingdom
While Brown is not a rogue trader, his catastrophic blunder in sales of gold earns him a mention here. While acting as the Chancellor of the Exchequer in the United Kingdom, Between 1999 and 2002, Brown sold 60% of the UK’s gold reserves at $275 an ounce. It was later attacked as a “disastrous foray into international asset management” as he had sold at close to a 20-year low. He pressured the IMF to do the same, but it resisted. The gold sales have earned him the pejorative nickname ‘Golden Brown’, after the song by The Stranglers. Since then the price of Gold has almost trebled, meaning the decision cost the taxpayer an estimated £2 billion. Several Asian countries including China are named by an insider as having bought the gold “on the cheap” from the Treasury. The Chinese may have made more than £1 billion from Brown’s botched sell-off.
By jfrater
A rogue trader is a trader who acts independently of others - and, typically, recklessly - usually to the detriment of both the clients and the institution that employs him or her. In most cases this type of trading is high risk and can create huge losses.
“Since the average dealer now sits at a desk straight out of the Space Shuttle - and in many cases is relatively inexperienced and working under considerable pressure - mistakes are inevitable.
In May last year, London’s FTSE 100 index dropped by more than 2%, after a trader typed £300m, instead of £30m, while selling a parcel of shares.
In 1998, in the biggest incident of its kind ever, a Salomon Brothers trader mistakenly sold £850m-worth of French government bonds, when he carelessly leaned on his keyboard.
And at the end of 2001, shares in Exodus, a bankrupt internet firm, jumped by 59,000% when a rogue trader accidentally bid $100 for its shares, at a time when its value was 17 cents.” (BBC)
This is a list of the top 10 rogue traders, in no particular order.
10
Jerome Kerviel
Societe Generale’s Delta One
Rogue trader Jerome Kerviel was a quiet loner, whose disastrous deals on the European markets cost his bank a massive £3.5 billion. The more money 31-year-old Kerviel lost the more he gambled - which would have earned him the title of an incompetent mug in conventional betting circles. But this gambler’s losses were on an epic scale - dwarfing the £700 million fraud by British trader Nick Leeson, who broke Barings Bank in London in 1995.
While some branded Kerviel an idiot, one of France’s top bankers dubbed him a “genius of fraud” for the way he had managed to cover his tracks and bypass his bank’s checks. In a breathtaking understatement, one of Kerviel’s bosses at the French bank Societe Generale said he was “not one of our stars”. His huge losses on the Delta One trading desk not only cost his bank a mega-fortune, they were blamed for sending share prices crashing around the world.
Ironically, Kerviel, who earned £70,000 a year, was said to have made nothing personally from his massive scam. An insider at Societe Generale said: “What is completely unbelievable is that this person didn’t do it for his personal benefit. He didn’t get anything from it.” The glamorous world of high finance was a far cry from Kerviel’s private life, which was said to have disintegrated after his father died and his girlfriend dumped him.
Nick Leeson
Barings Bank
The best-known rogue trader is Nick Leeson, who bankrupted British bank Barings in 1995. Barings collapsed after Mr Leeson, the bank’s Singapore general manager of futures trading, lost £860m - then worth $1.38bn - on Asian futures markets, wiping out the bank’s cash reserves.
The company was bought for £1 after being in business for more than 230 years. After going on the run, Mr Leeson was jailed for four years in Singapore’s Changi prison. He was released in 1999 and wrote a bestseller, Rogue Trader, now a movie starring Ewan McGregor.
Mr Leeson is now chief executive of Irish football club Galway United.
Toshihide Iguchi
Daiwa Bank
The president of Japan’s Daiwa Bank received a particularly nasty shock on July 13 1995. Toshihide Iguchi, one of its senior US executives, confessed in a 30-page letter that he had lost $1.1bn through unauthorised bond trading.
Like Leeson and Rusnak, Iguchi ran up the losses over several years. Having risen from the back offices to become a trader in 1984, a lack of segregation within his division meant he could hide his losses from his superiors while he tried, and failed, to trade back to profit.
Following his confession, it emerged that he had conducted the cover-up for over a decade, falsifying some 30,000 trading slips. Having once been seen as the golden boy of the department, in 1996 he was jailed for four years and fined $2.6m.
In court, he told the judge that his life was filled with guilt, fear and deception after 11 years trying to recover his losses. Interviewed in jail, Iguchi said he had seen his earlier actions as merely a violation of internal rules. “I think all traders have a tendency to fall into the same trap. You always have a way of recovering the loss”, he told Time magazine.
Daiwa was also penalised heavily. The Federal Reserve ordered it to end all of its operations in America, leading to a sale of most of its US assets in January 2006.
7
Liu Qibing
Chinese Metals Trader
Chinese metals trader Liu Qibing disappeared in 2005 after betting wrongly that copper prices were going to fall and amassing huge losses of 0.2bn USD.
He was thought to be a copper dealer for the Chinese State Reserve Bureau at the London Metals Exchange. However, the Chinese State Reserve Bureau denied Mr Liu’s existence - despite LME traders saying they knew him as China’s main copper trader.
6
John Rusnak
Allied Irish Bank
Rusnakj
In 2002, US currency trader John Rusnak was charged with covering up $691m (£474m) of trading losses so that he could boost his own earnings. He was indicted by a federal grand jury on charges of bank fraud, false entry in bank records and aiding and abetting.
The indictment followed a four-month investigation into trading at Allfirst Financial, a subsidiary of Allied Irish Bank (AIB), from 1997 to 2001. Prosecutors said the trader did not actually profit from the trading losses, mostly on the Japanese yen.
He racked up and hid losses of $691m while leading a bizarre double life. Regarded as a quiet and unassuming family man, he invented aliases and fabricated documents to cover up a growing financial hole from bad bets on currencies, particularly Japanese yen.
The FBI described the case as “the largest bank fraud in the US in the last decade.
5
Yasuo Hamanaka
Suitomo
Less well-known, but financially large was the £1.3bn blown away by Yasuo Hamanaka, a metals trader at Japanese conglomerate Sumitomo. Mr Hamanaka, known as Mr Five Per Cent on account of his share of the world copper market, was jailed for eight years in 1996 after admitting to a 10-year career of unauthorised dealing. He had forged the signatures of two of his superiors in letters written to foreign dealers.
4
Peter Young
Morgan Grenfell
Peter Young was a fund manager at City bank Morgan Grenfell, which was later acquired by Deutsche Bank. In 1996, Mr Young was revealed to have bilked £220m from the funds he ran, thanks to a series of unauthorised investments he concealed.
The case returned to the headlines when Mr Young appeared at City of London Magistrates’ Court wearing a woman’s jumper and dress - and was eventually found unfit to stand trial.
3
Brian Hunter
Amaranth Advisors
Brian Hunter was a Canadian based natural gas trader for the now closed Amaranth Advisors hedge fund. Amaranth, which had over $9 billion in assets, collapsed in 2006 after Hunter’s gamble on natural gas futures market went bad.
Amaranth and Hunter have been accused by the Commodity Futures Trading Commission of conspiring to manipulate natural gas prices.
2
The “Fat-Fingered” Mizuho Trader
A Mizuho Securities trader sold 610,000 shares in job recruiting company J-Com Co. for 1 yen apiece, instead of an intended sale of 1 share at 610,000 yen. Mizuho said it was unable to cancel the order, causing it to lose about $340 million. The mistake was attributed to the “fat-finger” syndrome, shorthand for gaffes made when traders hit the wrong button on a keyboard and lose a bundle.
The Tokyo stock exchange later acknowledged that a glitch in its system made it impossible to cancel the trade. Mizuho and the exchange have discussed sharing some of the losses, but have so far failed to reach an agreement.
1
The Hunt Brothers
Nelson Bunker Hunt and William Herbert Hunt bought more than 100 million ounces of silver bullion in 1979 and 1980, causing silver prices to soar to a record of more than $50 an ounce before a sharp plunge.
After the crash, the brothers were left with silver obligations of $1.75 billion and a silver hoard of 59 million ounces valued then at $1.2 billion, indicating a loss of $550 million. The Hunts, whose fortune was once estimated at $6 billion, filed for bankruptcy protection in 1988.
Bonus
Gordon Brown
Prime Minister of the United Kingdom
While Brown is not a rogue trader, his catastrophic blunder in sales of gold earns him a mention here. While acting as the Chancellor of the Exchequer in the United Kingdom, Between 1999 and 2002, Brown sold 60% of the UK’s gold reserves at $275 an ounce. It was later attacked as a “disastrous foray into international asset management” as he had sold at close to a 20-year low. He pressured the IMF to do the same, but it resisted. The gold sales have earned him the pejorative nickname ‘Golden Brown’, after the song by The Stranglers. Since then the price of Gold has almost trebled, meaning the decision cost the taxpayer an estimated £2 billion. Several Asian countries including China are named by an insider as having bought the gold “on the cheap” from the Treasury. The Chinese may have made more than £1 billion from Brown’s botched sell-off.
Tuesday, March 25, 2008
Subliminal Advertising: how it's done
Watch the video to the end to experience a veritable shock of disbelief:
Friday, March 21, 2008
Top 10 Worst Company URLs
The top 10 unintentionally worst company URL
Everyone knows that if you are going to operate a business in today’s
world you need a domain name. It is advisable to look at the domain name
selected as other see it and not just as you think it looks. Failure to do
this may result in situations such as the following (legitimate) companies
who deal in everyday humdrum products and services but clearly didn’t give
their domain names enough consideration:
1 . A site called ‘Who Represents’ where you can find the name of the agent
that represents a celebrity. Their domain name… wait for it… is
www.whorepresents.com
2. Experts Exchange, a knowledge base where programmers can exchange
advice and views at
www.expertsexchange.com
3. Looking for a pen? Look no further than Pen Island at
www.penisland.net
4. Need a therapist? Try Therapist Finder at
www.therapistfinder.com
5. Then of course, there’s the Italian Power Generator company…
www.powergenitalia.com
6. And now, we have the Mole Station Native Nursery, based in New South
Wales:
www.molestationnursery.com
7. If you’re looking for computer software, there’s always
www.ipanywhere.com
8. Welcome to the First Cumming Methodist Church. Their website is
www.cummingfirst.com
9. Then, of course, there’s these brainless art designers, and their
whacky website:
www.speedofart.com
10. Want to holiday in Lake Tahoe? Try their brochure website at
www.gotahoe.com
Everyone knows that if you are going to operate a business in today’s
world you need a domain name. It is advisable to look at the domain name
selected as other see it and not just as you think it looks. Failure to do
this may result in situations such as the following (legitimate) companies
who deal in everyday humdrum products and services but clearly didn’t give
their domain names enough consideration:
1 . A site called ‘Who Represents’ where you can find the name of the agent
that represents a celebrity. Their domain name… wait for it… is
www.whorepresents.com
2. Experts Exchange, a knowledge base where programmers can exchange
advice and views at
www.expertsexchange.com
3. Looking for a pen? Look no further than Pen Island at
www.penisland.net
4. Need a therapist? Try Therapist Finder at
www.therapistfinder.com
5. Then of course, there’s the Italian Power Generator company…
www.powergenitalia.com
6. And now, we have the Mole Station Native Nursery, based in New South
Wales:
www.molestationnursery.com
7. If you’re looking for computer software, there’s always
www.ipanywhere.com
8. Welcome to the First Cumming Methodist Church. Their website is
www.cummingfirst.com
9. Then, of course, there’s these brainless art designers, and their
whacky website:
www.speedofart.com
10. Want to holiday in Lake Tahoe? Try their brochure website at
www.gotahoe.com
Tuesday, March 18, 2008
Whistleblower exposes insider trading program at JP Morgan
LEGAL INSIDER TRADING IN THREE EASY STEPS, BROUGHT TO YOU BY JP MORGAN AND THE SEC
KEVIN WILSON, MARIA CHRISTINA PADRO, JULIAN ASSANGE & staff
Monday March 17, 2008
A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing 'how-to' programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.
Most of us think of insider trading as illegal. It allows those with inside knowledge to tilt the playing field, with the small investors invariably losing to the privileged few. Unfortunately for the small investor, the big boys get to play by different rules, and it has all been made legal, thanks to the SEC.
In 2000 the SEC promulgated Rule 10b5-1. The new Rule was designed to address the confusion caused by a series of court decisions that had left investors uncertain about what constitutes insider trading. Rule 10b5-1 was designed to "clarify" what constitutes illegal insider trading.
But top Wall Street houses were not to be deterred from advantaging their big clients at the expense of their small ones. Wall Street firms like JP Morgan found loopholes in Rule 10b5-1 that allowed them to continue trading on inside information "legally." Indeed, JP Morgan has gone so far as to set up an entire 'selling program' within its Securities division to help their clients profit from the loophole.
Documents obtained earlier this month by Wikileaks from JP Morgan Private Bank, which subtitles itself as "World class solutions for wealthy individuals and families", show the firm has a dedicated '10b5-1 Selling program,' along with a 'dedicated 10b5-1 team' to help its clients take advantage of the loophole.
Here's how it works:
1. An insider client transfers all or a portion of their company stock into a JP Morgan Securities Inc. brokerage account.
2. The insider then develops, in conjunction with the 10b5-1 team, a 'phased, pre-planned sales program to be executed at either market or
specified prices'.
3. Depending on the information available to the insider (but not the public), the insider can decide whether to execute the sale or not.
By gaming the system this way, JP Morgan teaches insiders how to use their knowledge to create a rigged market, one in which it is the "house" that always wins, and the small investor that always loses.
According to a statistical research paper published by Stanford's Graduate School of Business in September last year, executive 10b5-1 trades beat gains relative to non 10b5-1 executive trades by more than 500%.
One can only guess at how many insiders profited under JP Morgan's "insider trading program," leaving small investors holding the bag.
Part 2: PriSM loopholes let CEOs walk away to tax free profit while their companies implode
Sample list companies and executives using pre-paid variable forwards, from page 14 of the confidential JP Morgan memo obtained by Wikileaks
Sample list companies and executives using pre-paid variable forwards, from page 14 of the confidential JP Morgan memo obtained by Wikileaks
GAWKER.COM
Monday March 17, 2008
Wikileaks obtained a JP Morgan presentation put together for media mogul Barry Diller, showing Diller how to protect his personal wealth against any, erm, hypothetical future declines in the value of his internet conglomerate IAC. The techniques outlined in the 31-page document (PDF) neatly circumvent restrictions on insider trading but are really only useful for insiders who anticipate their company shares will decline, since stock price increases are limited along with declines. For example, here was the plan presented to Diller in February 2007:
In the first scenario presented to Diller above, "Structure A," his shares would be guaranteed at their then value of $40.58, but Diller could never realize a price increase to beyond $44.64 per share.
Sure enough, in the year after entering in to the "complex series of transactions," IAC shares declined 50 percent, while Diller was protected, at least according to the leaker who provided the document.
Government or company regulations may have prevented Diller from outright selling his shares at the time, but even if they hadn't, announcing a "pre-arranged stock trading plan" in a press release sounds so much better than disclosing in an SEC filing that you are dumping a bunch of shares, as illustrated by the sample press release included in JP Morgan's presentation to Diller. Here's the top of one:
Not that Diller's tactics are surprising; these sorts of crafty tactics are exactly how the ruthless mogul retains control of his company against the wishes of his dominant shareholder and apparent teacher, John "Darth Vader" Malone.
First appeared as: http://gawker.com/5003973/leaked-doc-shows-how-barry-diller-protected-himself-against-iacs-tumble
Monday, March 17, 2008
The Atari ST
The Atari ST (part 1)
One friday afternoon in July, 1984 the rumor floated through the halls: Jack Tramiel had bought Atari, and we were all going to be killed. Or laid-off. Or something. My office-mate had worked at Commodore a few years earlier (where Jack had been CEO) and said “If this is true, I’m quitting. I’m not working for Jack again; he’s a monster.” I didn’t know anything about Jack, but this wasn’t a good sign.
On Monday the rumor turned out to be true. Like all important happenings at Atari — layoffs, major management shake-ups, bad financial news and so on — we found out through the San Jose Mercury News rather than an official internal announcement. The paper said that Jack Tramiel had bought Atari from Warner Communications, and he and his people were on the way to San Jose to take the company apart and kill us. Or lay us off. Or something. The Merc didn’t exactly say that Jack was a monster, but that he had a hard, no-nonsense management style. This wasn’t a good sign.
I remember spending a crazy couple of days trying to concentrate on my current project; I sure didn’t feel like doing much (I was working on a computerized Trivial Pursuit game, something we’d code-named “Trivial Compute,” and was learning a lot about data compression algorithms, but my heart just wasn’t in it). The hallways were buzzing with rumors of entire buildings-full of people who had been nuked.
It took a little while for them to get to us. On Wednesday two of Jack’s “lieutenants” arrived at our building (we consumer games folks had been co-located with the coin-op division to save money). Someone had phoned ahead and said that the Tramiels were coming over and that news spread like wildfire. When they showed up, someone said, “I see them! They’re walking in the front door!”. I dialed-up the building’s intercom system and announced:
“Imperial storm troopers have entered the base! Imperial storm troopers have — Urk!”
then hung up abruptly. (Later, one of the two said that the timing couldn’t have been more perfect; my announcement happened as they had begun marching down the main hallway on the way to meet with the people they were going to lay off…).
There were interviews. Fast interviews that might better be described as grillings. We each had about five minutes to talk with Leonard Tramiel (Jack’s son) and John Feagans (a long-time Commodore employee, and someone that the Tramiels trusted). They asked questions like: Do you have any experience writing operating systems? I told them that I’d read Lion’s notes on Unix, and about my CS coursework at Maryland and the tools work that I liked to do. Did I want to work on a new computer? Sure, that sounded kind of exciting. I might have mentioned Soul of a New Machine and stuff about compilers. My memory of this is rather vague; I recall having a private conversation with the two of them, but others have said that we were interviewed in groups of five or six. It might have been both.
A couple hours later we were told to meet in a common area. There were about sixty of us. “Do you want the news individually, or all at once?” We took a vote, and most of us (veterans of many, many layoffs) just wanted to get things over with quickly. Leonard read two lists of names. Those on the longer list, about two thirds of the people there, were the ones getting a package. Those on the shorter list would be working for the Tramiels, at least for a while. My name was on the shorter list.
It was unclear if it would be better to be laid-off or to work for these people; they were tight-lipped and nearly complete ciphers. Who were the lucky ones? There was no way to tell. I helped my now-ex-cow-orkers pack their offices and load boxes into their cars. Out of the cluster of six programmers and an artist, people who I’d worked with and survived layoffs with for years, I was the only one left.
There was a lot of stuff left behind, and a bunch of VAXes that I could mess around with nearly all by myself. It wasn’t all that much fun.
- - - -
All of us programmers got VP desks.
The Tramiels had bought a lot of stuff — by contract they could have anything they wanted of the Warner Atari’s assets — and we needed to set up our offices in the new building that engineering was being consolidated in. We were moving from the coin-op building (since Jack hadn’t purchased the coin-op business, the doors to that part of the building, now a separate company, had been locked) to a building in Sunnyvale that had belonged to Corporate Research. Most of the people in Research had been let go; Lisp Machines and Vaxes were humming away without anyone to use them. Jack wasn’t interested in academics.
It turned out that we could have nearly anything from the old Atari that we wanted, since it didn’t cost anything extra. While the Tramiels were selling the more expensive items (like the Vaxes and Symbolics Lisp Machines that the researchers had been using), more mundane stuff could be had for the asking. You could have just about anything you wanted, and as long as Jack didn’t have to write a check for it (and was something that he couldn’t sell to make quick cash), he didn’t care.
Anything?
“Well,” said somebody, “There’s this warehouse full of stuff in Santa Clara…”
So we went over there. Remember the last scene in the movie Raiders of the Lost Ark where they wheel the boxed-up Ark into a gigantic warehouse with acres of huge boxes and whatnot? This was like that, but for real. This warehouse (and others like it) was where the office equipment from all of the now-empty Atari buildings had gone; maybe fifty or sixty buildings’ worth.
I think that Jim Eisenstein, one of our graphics guys, started it. “I’ll take that one, there,” he said to one of the warehouse workers. Jim pointed at a really nice, large desk. “Okay,” said the fellow with the forklift, and he got it down. No argument. Pretty soon we had all chosen really nice, large desks (and some nice chairs) and tagged them for delivery. The guys running the forklifts didn’t care.
Dave Getreu and I shared an office for over a year (he was the guy whose version of Centipede I had bettered, but he was pretty decent about that). Our two desks barely fit, but it seemed worth it; a symbolic finger in the eye of the old, crappy Warner-Atari management. I don’t know who had used my desk before me, but it was sure nicer than anything I’d had, and my guess was that for every dollar that my efforts had earned the company that the former owner had blown at least two bucks down the toilet in bad deals and clueless management.
Rule of thumb: If your company has more VPs than it does bathrooms, you’re in trouble.
- - - -
The Tramiels had bought Atari with a plan to make a little money immediately by quickly selling off assets, and more intermediate-term money by making minor updates to the existing Atari product lines (the 400/800/1200 series of 8-bit computers), but the biggest effort was going to be a completely new line of cheap computers. There were some other products in various stages of development (the Atari 7800, whose major engineering work had actually been done outside Atari, at a small company named General Computer, a new sound chip code-named Amy, and some others) that the Tramiels kept lightly staffed.
The new computer was going to be based on a 16-bit or 32-bit processor. The Tramiels were initially pretty closed-mouthed about things; they had brought some folks from Commodore with them, and I got the impression that they didn’t trust us that much, and in addition there was a legal fight going on with Commodore over trade secrets. During the next month or two the design of the new system solidified. It was going to be based on a 32-bit processor, have a 16-bit bus (thus ST, for “Sixteen, Thirty-two”), have 256K of RAM and 128K of ROM. It was going to have a mouse and a graphical interface of some kind. At first the National 32000 series processor was a serious possibility, but in the end the Motorola 68000 won out. [In retrospect this was a good choice; National chips looked great on paper and had a nice, clean instruction set, like itty bitty Vaxes, but in reality they were very buggy and quite slow].
There were a number of candidates for the ST operating system. Leonard Tramiel gave us some GEOS documents to evaluate, as well as some specs on something called Crystal (from Digital Research Inc), and there were one or two other contenders. Frankly, none of the choices seemed all that great. Ultimately the Tramiels signed a contract with DRI to port CP/M-68K and the still-being-developed GEM user interface to our still-being-developed hardware.
The schedule for the ST was very aggressive; we were starting in August, more or less, and working systems needed to be ready for the Consumer Electronics Show in January. With lead-time for the custom chips measured in many weeks (I don’t remember exactly, perhaps 6 to 8 ), this didn’t leave much time for development. So while the hardware guys were spending 20 hour days frantically designing chips and wire-wrapping prototypes, the software guys were spending a lot of time at the beach.
No, really. The software team temporarily relocated to Monterey, 70 miles south of Silly Valley and on the California coast, which was where Digital Research was located. Initially we stayed in hotel rooms a short walk from the DRI campus, but after a few weeks Atari rented some houses for us in Carmel, just a few blocks from the world-class beaches there. I used to leave work around 5, watch the sunset over the ocean (because it would have been a shame to waste those), then go back and work really late.
Our first meeting with the folks from DRI did not go very well. One of their engineers tried to give us a chalkboard introduction to C (which I’d been using for five or six years at that point), and his “this is a for loop, this is a struct” talk didn’t go over very well (you can’t effectively teach a language in an hour like this anyway). Another engineer attempted a tutorial on assembly language (to video game programmers, ha). This attitude colored the whole Atari-DRI engineering relationship; in addition to the project’s incredibly short schedule, which put everyone under a lot of pressure, there was an uneasy division of turf: DRI got to call the shots on their code and architecture, while Atari had to make it work. Things didn’t always go smoothly; when we found bugs or design problems, egos sometimes got in the way and there was an occasional temper flare-up.
Stress: A number of us learned how to juggle. One of the DRI people had a nervous tick in the form of a “quacking” sound, and this spread through the group (a year later some of us were still doing it a little). The word “fine” became a pejorative: “Don’t worry, everthing will work out just fine.” How are you feeling? Fine, okay?
Getting access to working hardware was a problem. There was a wire-wrap prototype of the hardware in Sunnyvale, but it was flaky as hell and certainly not transportable. You could run something, have it crash, then wiggle a board slightly and have the code work just fine. There were attempts to get the software engineers hardware earlier, but they were always unreliable (e.g., big, expensive machine-wire-wrapped boards that almost worked, but that turned out to be just too dodgy to trust).
Wire-wrap: Imagine a board, say two feet by three feet, crammed with chips. On the flip side of the board are thousands of half-inch metal pins. Now, the pins have to wired-up to each other in order for the chips to talk, and the way you do this is to wrap a fine wire tightly around a one pin, run the wire up and about, then wrap it around the other pin and cut the wire. Hilarity ensues. There are thousands of wires to keep track of, and only so many colors of wire available. Little bits of wire will flake off, get buried and short out contacts. Wires will work themselves loose. Wires carrying signals at high speed will interfere with each other and cause ghost signals. Wires will break internally and invisibly, become unwrapped, mysteriously stop conducting electricity (sometimes), and this is all behavior that doesn’t include the simple boneheaded mistake of somebody mis-wiring two pins out of those thousands because they were short on sleep.
The nasty thing about wire-wrap prototypes was, if your code didn’t work, you could just shake the boards (there were three or four of them you could do this to), and if everything settled down right your code might actually run. Or bomb in a different, exciting way. Software progress was slow. There were attempts to get us more stable prototypes, but they never really worked that well.
Sometime in December we started getting chips from the fabs and the real hardware began to come to life. We booted the ST for the first time (it was exhilarating to see the floppy disk spin and seek under OS control — this is something that you take for utterly for granted until you have to make it work yourself).
The original budget of 128K of ROM was blown pretty early on, and we targeted 192K. Initially this was so that the machine could incorporate a built-in BASIC interpreter. Up until this point it was virtually unthinkable that you could ship a consumer computer without BASIC in ROM (the Apple II, the Commodore line, and all of the Atari computers had built-in BASIC).
DRI had a version of BASIC available, and one of our engineers (someone the Tramiels knew) was hired and given the task of porting it. I don’t remember precisely what went wrong, but it just didn’t happen. It’s possible that the DRI BASIC wasn’t very good, or was too full of platform-specific garbage to easily port, and it’s also possible that the engineer given the job just wasn’t up to it. Regardless, we started to realize that just the operating system alone was going to use up the entire 192K (and in fact, blew past it and had to be pared down during a 2-3 week crunching period just before we shipped the ROMs), and BASIC simply would not fit.
The other thing that was clear was that the software was going to be late; the ROM version wasn’t going to make it in time for CES. We had disk-based versions of the OS (called TOS, for “The Operating System” — catchy) booting, and that’s what we showed. The hardware guys doubled the amount of RAM in the system so the OS could live in RAM with room left over for applications.
Jack didn’t pay for all of the engineers to fly to Las Vegas, but he was willing to put us up in a hotel and get us CES badges if we arranged our own transportation, so a few of us did a road-trip. The show was fun; there was a lot of excitement and speculation about Atari’s new products. What people didn’t know is that there were only about five working ST systems in existence, and they kept dying on the show floor (possibly due to heat problems, bad connections, or barely-working custom chips going south) and had to be resurrected from time to time in a back room where techs were hidden away with soldering irons, a limited number of spare chips, and a liberal supply of invective.
We’d shown the ST to the public. Now we had to make it work.
One friday afternoon in July, 1984 the rumor floated through the halls: Jack Tramiel had bought Atari, and we were all going to be killed. Or laid-off. Or something. My office-mate had worked at Commodore a few years earlier (where Jack had been CEO) and said “If this is true, I’m quitting. I’m not working for Jack again; he’s a monster.” I didn’t know anything about Jack, but this wasn’t a good sign.
On Monday the rumor turned out to be true. Like all important happenings at Atari — layoffs, major management shake-ups, bad financial news and so on — we found out through the San Jose Mercury News rather than an official internal announcement. The paper said that Jack Tramiel had bought Atari from Warner Communications, and he and his people were on the way to San Jose to take the company apart and kill us. Or lay us off. Or something. The Merc didn’t exactly say that Jack was a monster, but that he had a hard, no-nonsense management style. This wasn’t a good sign.
I remember spending a crazy couple of days trying to concentrate on my current project; I sure didn’t feel like doing much (I was working on a computerized Trivial Pursuit game, something we’d code-named “Trivial Compute,” and was learning a lot about data compression algorithms, but my heart just wasn’t in it). The hallways were buzzing with rumors of entire buildings-full of people who had been nuked.
It took a little while for them to get to us. On Wednesday two of Jack’s “lieutenants” arrived at our building (we consumer games folks had been co-located with the coin-op division to save money). Someone had phoned ahead and said that the Tramiels were coming over and that news spread like wildfire. When they showed up, someone said, “I see them! They’re walking in the front door!”. I dialed-up the building’s intercom system and announced:
“Imperial storm troopers have entered the base! Imperial storm troopers have — Urk!”
then hung up abruptly. (Later, one of the two said that the timing couldn’t have been more perfect; my announcement happened as they had begun marching down the main hallway on the way to meet with the people they were going to lay off…).
There were interviews. Fast interviews that might better be described as grillings. We each had about five minutes to talk with Leonard Tramiel (Jack’s son) and John Feagans (a long-time Commodore employee, and someone that the Tramiels trusted). They asked questions like: Do you have any experience writing operating systems? I told them that I’d read Lion’s notes on Unix, and about my CS coursework at Maryland and the tools work that I liked to do. Did I want to work on a new computer? Sure, that sounded kind of exciting. I might have mentioned Soul of a New Machine and stuff about compilers. My memory of this is rather vague; I recall having a private conversation with the two of them, but others have said that we were interviewed in groups of five or six. It might have been both.
A couple hours later we were told to meet in a common area. There were about sixty of us. “Do you want the news individually, or all at once?” We took a vote, and most of us (veterans of many, many layoffs) just wanted to get things over with quickly. Leonard read two lists of names. Those on the longer list, about two thirds of the people there, were the ones getting a package. Those on the shorter list would be working for the Tramiels, at least for a while. My name was on the shorter list.
It was unclear if it would be better to be laid-off or to work for these people; they were tight-lipped and nearly complete ciphers. Who were the lucky ones? There was no way to tell. I helped my now-ex-cow-orkers pack their offices and load boxes into their cars. Out of the cluster of six programmers and an artist, people who I’d worked with and survived layoffs with for years, I was the only one left.
There was a lot of stuff left behind, and a bunch of VAXes that I could mess around with nearly all by myself. It wasn’t all that much fun.
- - - -
All of us programmers got VP desks.
The Tramiels had bought a lot of stuff — by contract they could have anything they wanted of the Warner Atari’s assets — and we needed to set up our offices in the new building that engineering was being consolidated in. We were moving from the coin-op building (since Jack hadn’t purchased the coin-op business, the doors to that part of the building, now a separate company, had been locked) to a building in Sunnyvale that had belonged to Corporate Research. Most of the people in Research had been let go; Lisp Machines and Vaxes were humming away without anyone to use them. Jack wasn’t interested in academics.
It turned out that we could have nearly anything from the old Atari that we wanted, since it didn’t cost anything extra. While the Tramiels were selling the more expensive items (like the Vaxes and Symbolics Lisp Machines that the researchers had been using), more mundane stuff could be had for the asking. You could have just about anything you wanted, and as long as Jack didn’t have to write a check for it (and was something that he couldn’t sell to make quick cash), he didn’t care.
Anything?
“Well,” said somebody, “There’s this warehouse full of stuff in Santa Clara…”
So we went over there. Remember the last scene in the movie Raiders of the Lost Ark where they wheel the boxed-up Ark into a gigantic warehouse with acres of huge boxes and whatnot? This was like that, but for real. This warehouse (and others like it) was where the office equipment from all of the now-empty Atari buildings had gone; maybe fifty or sixty buildings’ worth.
I think that Jim Eisenstein, one of our graphics guys, started it. “I’ll take that one, there,” he said to one of the warehouse workers. Jim pointed at a really nice, large desk. “Okay,” said the fellow with the forklift, and he got it down. No argument. Pretty soon we had all chosen really nice, large desks (and some nice chairs) and tagged them for delivery. The guys running the forklifts didn’t care.
Dave Getreu and I shared an office for over a year (he was the guy whose version of Centipede I had bettered, but he was pretty decent about that). Our two desks barely fit, but it seemed worth it; a symbolic finger in the eye of the old, crappy Warner-Atari management. I don’t know who had used my desk before me, but it was sure nicer than anything I’d had, and my guess was that for every dollar that my efforts had earned the company that the former owner had blown at least two bucks down the toilet in bad deals and clueless management.
Rule of thumb: If your company has more VPs than it does bathrooms, you’re in trouble.
- - - -
The Tramiels had bought Atari with a plan to make a little money immediately by quickly selling off assets, and more intermediate-term money by making minor updates to the existing Atari product lines (the 400/800/1200 series of 8-bit computers), but the biggest effort was going to be a completely new line of cheap computers. There were some other products in various stages of development (the Atari 7800, whose major engineering work had actually been done outside Atari, at a small company named General Computer, a new sound chip code-named Amy, and some others) that the Tramiels kept lightly staffed.
The new computer was going to be based on a 16-bit or 32-bit processor. The Tramiels were initially pretty closed-mouthed about things; they had brought some folks from Commodore with them, and I got the impression that they didn’t trust us that much, and in addition there was a legal fight going on with Commodore over trade secrets. During the next month or two the design of the new system solidified. It was going to be based on a 32-bit processor, have a 16-bit bus (thus ST, for “Sixteen, Thirty-two”), have 256K of RAM and 128K of ROM. It was going to have a mouse and a graphical interface of some kind. At first the National 32000 series processor was a serious possibility, but in the end the Motorola 68000 won out. [In retrospect this was a good choice; National chips looked great on paper and had a nice, clean instruction set, like itty bitty Vaxes, but in reality they were very buggy and quite slow].
There were a number of candidates for the ST operating system. Leonard Tramiel gave us some GEOS documents to evaluate, as well as some specs on something called Crystal (from Digital Research Inc), and there were one or two other contenders. Frankly, none of the choices seemed all that great. Ultimately the Tramiels signed a contract with DRI to port CP/M-68K and the still-being-developed GEM user interface to our still-being-developed hardware.
The schedule for the ST was very aggressive; we were starting in August, more or less, and working systems needed to be ready for the Consumer Electronics Show in January. With lead-time for the custom chips measured in many weeks (I don’t remember exactly, perhaps 6 to 8 ), this didn’t leave much time for development. So while the hardware guys were spending 20 hour days frantically designing chips and wire-wrapping prototypes, the software guys were spending a lot of time at the beach.
No, really. The software team temporarily relocated to Monterey, 70 miles south of Silly Valley and on the California coast, which was where Digital Research was located. Initially we stayed in hotel rooms a short walk from the DRI campus, but after a few weeks Atari rented some houses for us in Carmel, just a few blocks from the world-class beaches there. I used to leave work around 5, watch the sunset over the ocean (because it would have been a shame to waste those), then go back and work really late.
Our first meeting with the folks from DRI did not go very well. One of their engineers tried to give us a chalkboard introduction to C (which I’d been using for five or six years at that point), and his “this is a for loop, this is a struct” talk didn’t go over very well (you can’t effectively teach a language in an hour like this anyway). Another engineer attempted a tutorial on assembly language (to video game programmers, ha). This attitude colored the whole Atari-DRI engineering relationship; in addition to the project’s incredibly short schedule, which put everyone under a lot of pressure, there was an uneasy division of turf: DRI got to call the shots on their code and architecture, while Atari had to make it work. Things didn’t always go smoothly; when we found bugs or design problems, egos sometimes got in the way and there was an occasional temper flare-up.
Stress: A number of us learned how to juggle. One of the DRI people had a nervous tick in the form of a “quacking” sound, and this spread through the group (a year later some of us were still doing it a little). The word “fine” became a pejorative: “Don’t worry, everthing will work out just fine.” How are you feeling? Fine, okay?
Getting access to working hardware was a problem. There was a wire-wrap prototype of the hardware in Sunnyvale, but it was flaky as hell and certainly not transportable. You could run something, have it crash, then wiggle a board slightly and have the code work just fine. There were attempts to get the software engineers hardware earlier, but they were always unreliable (e.g., big, expensive machine-wire-wrapped boards that almost worked, but that turned out to be just too dodgy to trust).
Wire-wrap: Imagine a board, say two feet by three feet, crammed with chips. On the flip side of the board are thousands of half-inch metal pins. Now, the pins have to wired-up to each other in order for the chips to talk, and the way you do this is to wrap a fine wire tightly around a one pin, run the wire up and about, then wrap it around the other pin and cut the wire. Hilarity ensues. There are thousands of wires to keep track of, and only so many colors of wire available. Little bits of wire will flake off, get buried and short out contacts. Wires will work themselves loose. Wires carrying signals at high speed will interfere with each other and cause ghost signals. Wires will break internally and invisibly, become unwrapped, mysteriously stop conducting electricity (sometimes), and this is all behavior that doesn’t include the simple boneheaded mistake of somebody mis-wiring two pins out of those thousands because they were short on sleep.
The nasty thing about wire-wrap prototypes was, if your code didn’t work, you could just shake the boards (there were three or four of them you could do this to), and if everything settled down right your code might actually run. Or bomb in a different, exciting way. Software progress was slow. There were attempts to get us more stable prototypes, but they never really worked that well.
Sometime in December we started getting chips from the fabs and the real hardware began to come to life. We booted the ST for the first time (it was exhilarating to see the floppy disk spin and seek under OS control — this is something that you take for utterly for granted until you have to make it work yourself).
The original budget of 128K of ROM was blown pretty early on, and we targeted 192K. Initially this was so that the machine could incorporate a built-in BASIC interpreter. Up until this point it was virtually unthinkable that you could ship a consumer computer without BASIC in ROM (the Apple II, the Commodore line, and all of the Atari computers had built-in BASIC).
DRI had a version of BASIC available, and one of our engineers (someone the Tramiels knew) was hired and given the task of porting it. I don’t remember precisely what went wrong, but it just didn’t happen. It’s possible that the DRI BASIC wasn’t very good, or was too full of platform-specific garbage to easily port, and it’s also possible that the engineer given the job just wasn’t up to it. Regardless, we started to realize that just the operating system alone was going to use up the entire 192K (and in fact, blew past it and had to be pared down during a 2-3 week crunching period just before we shipped the ROMs), and BASIC simply would not fit.
The other thing that was clear was that the software was going to be late; the ROM version wasn’t going to make it in time for CES. We had disk-based versions of the OS (called TOS, for “The Operating System” — catchy) booting, and that’s what we showed. The hardware guys doubled the amount of RAM in the system so the OS could live in RAM with room left over for applications.
Jack didn’t pay for all of the engineers to fly to Las Vegas, but he was willing to put us up in a hotel and get us CES badges if we arranged our own transportation, so a few of us did a road-trip. The show was fun; there was a lot of excitement and speculation about Atari’s new products. What people didn’t know is that there were only about five working ST systems in existence, and they kept dying on the show floor (possibly due to heat problems, bad connections, or barely-working custom chips going south) and had to be resurrected from time to time in a back room where techs were hidden away with soldering irons, a limited number of spare chips, and a liberal supply of invective.
We’d shown the ST to the public. Now we had to make it work.
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