A Guide to the Nerds of Fixed Income (part 2)

Part 2 of my post profiling the relative nerdishness of various fixed income desks. Inherently, unapologetically biased. Anyone wishing to lodge complaints, corrections or additional context can find me at Jack Coombs Field watching Duke baseball in the super regional. #BlueCollar #GoDuke

Investment grade corporate credit

Eternally grouchy, but they have good reasons for being so. A universe of primarily plain vanilla bonds that trade as a spread product to treasuries due to the added default and liquidity risk. Trading volumes and liquidity measures are much lower, while financing costs are higher. The idiosyncratic credit risk make the bonds difficult to hedge, though the rise of exchange traded credit funds has made it easier to balance broad market-based credit risk. Wedged firmly between the debt and equity underwriting groups at big shops, the internal politics can be tricky. Practitioners are expected to know as much detail about the companies they cover as equity analysts, but are discouraged from disagreeing with their typical rah rah outlook. The infantry troops of fixed income - tough, hard working, nose to the grindstone, smart enough not to lift their heads when the bullets start flying. Can exhibit inspiring cohesion when cornered. Many years ago, during a particularly brutal comp and RIF season, a group of credit traders are rumored to have shown up to a 7am morning meeting already in the bag. Then proceeded to burp and pass gas throughout the meeting, while asking a few pointed but not impertinent questions. Absolute legends. 

High yield corporate credit

The smartest group on the floor next to the vol desk, leaning more towards law and accounting than quant. The market for high yield, or junk, rated debt is smaller, less liquid, significantly more complex and volatile than that of investment grade. Deep knowledge of bankruptcy and securities law, along with an exhaustive approach to analyzing financial statements, is standard. Often attracts lawyers and very sharp MBAs who can independently value balance sheet assets, and have niche expertise in the areas they cover, such as companies with biotech patents or mineral rights. Interest rate risk is trivial compared to the credit risk, which to the best of my limited knowledge is fairly unhedgeable. Similar to vol desks, books can blow up overnight, so steady nerves and deep appetites for risk are hallmarks. If they were slicker and more extroverted they would probably end up in investment banking or private equity. Intellectually sophisticated and fair minded, they are possibly the most interesting people to talk to over drinks. But don't cross them. They and their clients will bring a gun to a knife fight. 

Structured products

Beyond the $9 trillion agency MBS market, with trading volume of nearly $300 billion per day, lies the other structured product securities markets. These markets are smaller and relatively less, to extremely less, liquid and transparent. Understanding the asset class and its economic drivers, the characteristics of the underlying loans, and the interest rate and credit dynamics of the wide variety of securities that are structured from pools of such loans is hard work. A lot of specialized work that requires deep expertise in the business that produces the loans, e.g. subprime autos or commercial real estate; the financing and underwriting of the loans into securitization; and the structuring of cashflows from the pool into the various securities of the deal. 

For better and for worse, the temperament and personality characteristics of the various structured product desks tends to mimic those of people in the loan origination business. The upside is that the securities and the businesses they support can be complex and fascinating. The downside is that, although lumped together, they tend to operate within silos more so than other areas of fixed income because each market and product is so highly specialized. Pro tip: most structured products desks are bored silly listening to the other desks' market commentary in the morning meeting. The geeking out and jargon will make your eyes glaze over. 

Asset-backed securities (ABS)

If you cover or trade asset-backed securities based on autos, credit cards or student loans, it helps to have an interest in consumer finance and perhaps personal bankruptcy law. Most ABS matures in under 3 years, though some can go out to 5 years, so secondary trading tends to be very light and risk management is getting the deal out the door. The big swingers are on desks with large underwriting businesses, typically at bulge bracket financial institutions with broker dealers and commercial banks, though some smaller banks specialize in particular market segments and those desks can be outsized drivers of that business. People who work on ABS desks can glance at you, ask where you work, then rattle off a surprisingly prescient guess of your household income, credit score and the likelihood you will default on a loan. Esoteric ABS desks know weird stuff like what people keep in those self-storage sheds outside of Poughkeepsie and how much money different medical practices make. 

Commercial mortgage-backed securities (CMBS)

Well, tra la la. Here we are. There are two flavors of CMBS: 

• Agency CMBS, which is exclusively multifamily commercial real estate loans, guaranteed by one of the government agencies (Fannie Mae, Freddie Mac or Ginnie Mae). The better and chummier your relationship with the government agencies, the more deals you lead, more trading flow you can generate and clients you can bring to the table. Despite being closer to investment banking than is often comfortable, it's filled with people who are great team leaders, geeky enough to structure bespoke bonds and personable enough to sell them, and can navigate political relationships with the GSEs, the Fed and recently the FDIC. That is no small feat. Good drinking buddies all around. 
• The other flavor is non-agency CMBS and CRE CLOs, which are securities comprised of pools of stabilized and transitional commercial real estate loans, respectively, of any property type, e.g. multifamily, office, hospitality, industrial, etc. To lead CMBS deals you need a pipeline of loans and/or to provide financing to specialty lenders as loans are being pooled for a deal. If you don't lead at least the occasional deal, you are trading from the sidelines. Commercial real estate and the desks that traffic in it tend to be dominated by big deals and bigger egos. Donald Trump is not an outlier. The spectrum runs from charismatic, iconoclastic thinkers with high tolerance for risk to insecure dictators who can't abide anyone speaking out of turn, much less dissent. Watch your back. 

Closing remarks

I've been at a lot of sell side shops and worked on a variety of fixed income desks. A few things stand out to me that might be useful for people entering the business or considering a switch. 

• There is a big difference between broker dealers that are primary dealers for the Federal Reserve and everyone else. It has the biggest impact in treasuries, repo and agency MBS, but that flow and knowledge difference trickles down through other products as well. There are some clients, particularly some large international clients, who will not trade with a broker dealer that is not a primary dealer for the Fed. 
• Likewise, there is a considerable difference between shops that finance loans and are lead managers of deals or securitizations in an asset class, and those that are solely in the selling group on deals or trade strictly in the secondary market. More knowledge, more experience, greater ability and mandate to warehouse risk. Smaller desks may work harder for some client business and can be more discrete. 

A Guide to the Nerds of Fixed Income (part 1)

Years ago, when working at an unnamed European bank, I was attending a corporate retreat. During lunch one of my European colleagues jokingly but rather pointedly asked me, “why do you Americans think you are the center of the universe in finance?” 

Never known for my tact, I responded, “because we have the deepest, most liquid financial markets in the world. The US comprises about 40% of global debt and equity, which is 2 to 3 times the size of all European markets combined. Moreover, (yes, I really do speak like this and it’s as obnoxious as it sounds) about 25% of global trading volume across financial products is executed in NYC. So it’s not that we think we’re the center of the financial universe, it’s that we actually are.” 

Yeah I know, but they were French and traded equities. Two things I find baffling. I don’t inquire why France thinks it has the best wine or Paris believes it’s the cultural capital of the universe. It does, it is, and you’ll get no arguments from me. 

Size matters

The global fixed income market had $140 trillion of securities outstanding as of 2023, with US fixed income accounting for roughly 40%, or $55 trillion. That’s nearly twice the size of the EU and UK combined, which account for 23%. 

The global equity market is smaller at $115 trillion, but even more heavily weighted towards the US. The US equity markets represents 43%, or $49 trillion, while the EU comprises 11%; making US equities nearly 4 times the size of the next largest market. The third largest region is China, whose equity market cap is just under 10% of the global total. 

Bonds vs equities

A favorite quote of everyone in fixed income is from James Carville, a political strategist who rose to prominence during the Clinton years. 

“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” 

If you work on the equity side of financial markets in virtually any capacity people tend to have at least a vague notion of what that is, and will politely suffer through a three minute response to the inevitable cold open of “what do you do for a living”? Those of us in fixed income have learned that responding at any length to such casual inquiries can result in a stampede to the bar as everyone within earshot suddenly needs to refresh their drink. 

The funny thing is that even within finance the two groups don’t tend to cross over much. It’s not just that they are functionally distinct markets, but the personalities of people who cover them are nearly diametrically opposed. 

The cheerleaders gravitate to equities

Equity markets are famously emotional. Yes, there are valuation models. Stock prices are supposedly tethered to reality via discounted cash flow models, price earnings ratios or other multiples, or some asset based method for estimating intrinsic value. Three different models will produce three wildly different theoretical valuations and none of them will be close to the actual stock price. The best laid battle plan rarely survives first contact with the enemy and the best stock price model can become irrelevant given a new company press release or government regulation. 

On the upside, every publicly traded share of stock of a company (of the same class) looks and is valued identically. Price, liquidity and trading volume data is mostly transparent and publicly available relatively quickly. There are nuances and dark pools and I’m sure loads of intricacies that I don’t know about or track because I’m not in equities. But overall I would say equity markets are easier to understand, particularly for non-experts, but can be more volatile and much harder to forecast. 

People who end up covering, trading, investing or underwriting equities tend to be optimistic, salesy, enthusiastic cheerleader types for their sector and the equity market in general. They tell good stories and they’re great fun at parties. 

The nerds are in fixed income

The bedrock of the fixed income universe is valuation models. These models project principal and interest cashflows, prepayments, delinquency and default rates, volatility and just about every nuance you can incorporate when valuing fixed income securities and derivatives. Practitioners spend an enormous amount of time and energy learning about, refining and evaluating them. 

The bond universe is also much more complex. Bonds from a single issuer will typically have a variety of coupons and maturities, and can occupy different places in the capital structure. Structured products, such as mortgage backed securities, asset backed securities and collateralized loan obligations, bundle loans into pools and structure the cash flows within an issue to create bonds with different interest rate and credit characteristics. 

The economic cycle, political shifts, global macro events and changes in investor sentiment impact trading and valuation in bonds as they do in stocks, but overall the impact tends to be more predictable and quantifiable. Disclosure of a CEO’s pending retirement or announcement of a new product launch, for example, might reverberate to the stock price but the company’s bonds are unlikely to register the event. 

Recognizing nerds in the wild

Many careers with a variety of specialties tend to sort based on personality type. Fixed income is no different. The following guide is based entirely on my subjective experience across sell side fixed income desks and my utterly biased opinions. Comments or additional color highly encouraged. 

Rates

May as well start with the adrenaline junkies. Treasuries, swaps and repo work closely together. They possibly have the broadest knowledge of markets and the Fed, deep appetites for risk, and if they execute basis trades for clients a pair of big brass ones. They don’t know a damn thing about credit but they don’t need to because everything they trade is either government guaranteed or fully collateralized on a mark to market basis. Not as sexy or complex as e.g. structured products, but the incredible pace, amount of risk taken and the size of their books can dwarf every other desk in fixed income. The biggest trades I’ve ever seen have been in treasuries and swaps, and they act like moving a few yards late on a Thursday is nothing. Intense, focused and surprisingly personable at work. Complete nutjobs off the clock. Someone is doing naked handstands at the rooftop bar? They work on the rates desk. 

Agency mortgage-backed securities (MBS)

More cerebral than rates but less dangerous than vol. Agency MBS is the second largest, most widely traded fixed income product after treasuries. It’s a flow product with functionally zero credit risk and is popular with investors worldwide. Broad based expertise similar to rates but with specialized focus on residential housing trends, prepayment risk, structured securities and mortgage derivatives. It’s a tricky combination of a deep, fast paced market in TBAs with the sophisticated knowledge and approach required to trade CMOs. MBS desks can be insular and clubby, as befits their reputation for reliably producing superstars. Intellectual, cool under pressure and quietly competitive AF. 

Volatility

Arguably the smartest desk in fixed income. Not always the most profitable. Heavily staffed by quants, these groups can produce wild P&L swings. As a vol trader once explained to me, “most traders are dating their risk. Vol traders are married to theirs, because they can’t usually get out of it.” Introverted and keenly sharp, they are appropriately wary of cowboy clients. Often at work the latest because their daily P&L isn’t calculated until all the vol and derivatives models have finished running. The MBS desk will be on their third Stoli O and soda before the vol desk badges out. Nerves of steel, an unassailable work ethic and a warped sense of humor are par for the course, because its not unheard of to walk into work to find that a trading book blew up overnight. 

That’s enough for today. Next episode will dissect the two sides of corporate credit, because investment grade and high yield have virtually nothing in common. And maybe I’ll profile the CMBS desk. Freaking hell. 

The Hill of Really Bad Takes That I Will Die On

• A perfect steak is tartare to medium rare. If you prefer it cooked beyond that, just order the chicken tenders. 

• Ebenezer Scrooge was deeply misunderstood. 

• Congress needs to pass legislation that will remove lawsuits requiring significantly complex scientific, medical or technical knowledge from adjudication at jury trials. There need to be specially educated and trained panels of judges who resolve these cases. See: Erin Brockovich and the crusade against PG&E, which was a public relations victory over both science and the law.

• The Outer Banks is as awful as Stranger Things is brilliant. 

This requires some context. The Pate brothers, who developed The Outer Banks, were born in my hometown of Winston-Salem, grew up in Raeford, North Carolina, and went to UNC Chapel Hill. Although it's likely they spent a lot of time vacationing on the Outer Banks, you would never guess it from watching the show. 

• Originally intended to be filmed in Wilmington (on the coast but considerably south of the actual Outer Banks) the location was hastily changed to the area around Kiawah and Charleston, SC, after the eastern NC redneck dominated state legislature passed that ridiculous "bathroom bill" in 2016. But when your show is titled and built around a geographically identifiable location (see: Yellowstone), using a stand-in diminishes the authenticity. In one episode, the intrepid gang visits a lighthouse, which looks entirely unlike any of the iconic OBX lighthouses. 

• The writing is lazy. The culture war depicted in the series between the Pogues and the Kooks is given no motivation beyond money and social status. The lead teenager role is a character named "John B", and his friends call him by name at least 5 times in every conversation. No one talks like that! I have no idea if it's a writers' tic or they were secretly trying to turn the show into a drinking game, but it's incredibly annoying. 
• The premise of the treasure hunt is fun and not as far-fetched as it seems. The area around the OBX is called the graveyard of the Atlantic. There are more than 2,000 known wrecks, with the earliest dating back to 1526. Blackbeard and his pirate crew spent years living in and around Beaufort, NC, on the southern end of the Outer Banks. The wreckage of his ship, the Queen Anne's revenge, was discovered outside of Beaufort Inlet, and rumors of his buried treasure have persisted for generations. There is so much history, legend, and real life ups and downs of barrier island life to explore and yet the writers seem to have all been holed up in LA with travel brochures. 
• I will charitably assume there was no actual wardrobe department, because it's jarring how bad the clothes are. 

• Bo Jackson was the greatest athlete of my generation and it's not even close. His highlight reels barely do him justice but they are still incredible to watch. Him running up the outfield wall remains one of my favorite clips of all time. 

• Though for spontaneous, bro athleticism, this is still one of the funniest videos I've seen. 

• Western North Carolina bar-b-que, with it's slightly sweet, tangy, tomato based sauce is far superior to vinegar-based Eastern North Carolina bar-b-que. That chorus of shotguns being racked is why this is by far the most controversial take on this list.

Conventional Notions of the Neutral Rate and Term Spreads Are Upended

The conventional wisdom regarding the evolution of short-term interest rates and long-term bond spreads is being challenged by some high profile economists in a recently published NBER working paper, with potentially significant implications for both monetary policy and term structure dynamics. Using a newly constructed dataset of short-maturity interest rates that spans over 200 years, the authors reassess very long run trends in the neutral rate of interest, commonly referred to as r*, and decomposition of the term premia. Among their conclusions (edited for brevity) are that:

• “Short-maturity rates have secularly fallen faster than long-maturity rates -- resulting in clear evidence of secularly rising term spreads. This is contrary to consensus literature that focused on falling term spreads over the recent decades in context of the ‘great moderation’ and falling inflation volatility.”
• “In order to jointly match long-run patterns in inflation volatility and term spreads, important qualifications in the existing literature are required: either term premia remain a close approximation of sovereign default risk and that risk has in fact risen; or else, factors other than default risk are long-run determinants of term premia time variation – plausibly liquidity factors.”

Among my own conclusions (assuming my understanding of the paper is correct, and no guarantees that’s the case) are that:  

• Their analysis indicates the long run mean for r*, the neutral real rate of interest, is about 1.25% (see Figure A.1 below, excerpted from the paper, page 41 of 56). Presuming a scenario where inflation is near the Fed’s 2.00% target, that would imply the neutral Fed funds rate is about 3.25%. 

• Full disclosure: I’ve long been a bit wary of both the usefulness of the term premium concept and the robustness of its calculation given the wide variation in model estimates, once famously (I flatter myself) calling it the flux capacitor of term structure theory. Common defenses of the term premium are roughly that “the levels of the model estimates may vary widely, but they’re all showing the same trend and that’s what you need to focus on.” Not sure how this latest challenge of the conventional methods will fit into the whole theory, but it’s not putting a dent in my skepticism as of yet. Hawking radiation this is not. 

For complete discussion, see the new working paper from the National Bureau of Economic Research (NBER), Rethinking Short-Term Real Interest Rates and Term Spreads Using Very Long-Run Data, by Rogoff, Rossi and Schmelzing, published October 29, 2024.

Refresher Definitions and Concepts

r* or r-star – the natural or neutral short-term rate of interest that neither stimulates nor restricts economic growth when the economy is at full employment. It follows that r* should be the target of the primary monetary policy rate, which in the US is the overnight fed funds rate, when the economy is in equilibrium. 

• The Fed should set the funds rate above r* to cool the economy and lower inflation, and set it below r* to stimulate the economy and combat deflation. 
• The neutral rate is not directly observable and economists use models to estimate it. It is considered to be an underlying characteristic of the economy and may fluctuate over time. 

Term spread – the difference in yield between two points on a yield curve, conventionally calculated as the longer-term minus the shorter-term yield. 

• For example, if the overnight (O/N) fed funds rate is 2.00% and the 10-year Treasury (10yT) rate is 5.00%, the term spread between the O/N and 10yT rate is 3.00% or 300 bp (spread = 5.00% - 2.00%). 

Term structure – the term spreads across the curve calculated against a fixed point, typically using e.g. the O/N fed funds or the 3-month T-bill rate as the short-term rate. 

Term premia – Standard finance theory posits that long term yields can be separated into two components: expectations of short-term rates over the same time period plus a term premium. A simplistic calculation decomposing the yield on the 10-year Treasury can be written as:

Yield on 10yT = Avg expected T-bill yields over next 10 years + Term premium

Unfortunately, neither of the components of the nominal yield can be directly observed, so each must be estimated.

• The interest rate expectations component can be estimated via surveys or forecasted through the use of term structure models. This component is often further separated into two parts: 

• Average expected future short-term real interest rates, plus 
• Average expected inflation until the bond matures.

• The term (or risk) premium component is the additional compensation that risk-averse investors require for holding longer-maturity bonds instead of rolling short-term securities. This can be estimated using joint macroeconomic and term structure models. Several popular models also split the term premium into two parts:
• The real risk premium which is the compensation investors require to bear risk associated with variable future short-term interest rates, and 
• The inflation risk premium which reflects the uncertainty of future inflation. 

Evolution of term premia estimation 

A variety of models have cropped up over the decades to estimate the term premium. The methodology of the models and the estimates tend to vary widely. 

For an excellent overview of the term premia and several models used to estimate it, see the BIS article, Term premia: models and some stylized facts from 2018. An example of four different model estimates of the 10yT term premium, and the decomposition of the 10T nominal yield into 2 components using one of the models, is excerpted below. 

The variation in the expectations component among the 4 models is also shown (left hand graph below), along with a complete decomposition of the 10-year yield using the Hordahl and Tristani joint macroeconomic and term structure model (right hand graph, below).

Updated estimates through 2024 of the term premium for the 10yT using the four most popular models currently continue to vary widely, from slightly negative to over 150 bp. See Will the True Treasury Term Premium Please Stand Up, for further details. 

The Cultural Jumbotron of Buffy the Vampire Slayer

It's difficult to overstate the dramatic irony of watching Buffy the Vampire Slayer for the first time post the MeToo awakening; post Joss Whedon's "cancellation" and his cringe-inducing, if possibly more damning attempt at rehabilitation. It's jarring to read through some of the fervent, idolatrous praise lavished upon Whedon for decades, while watching the character of Xander - the self-insert for Joss, and supposed everyman persona - speak and act in a way that relentlessly sexualizes, undermines, and belittles every strong female on the show. You know, the joking, dork best friend who you realize looking back was neither joking nor a friend. 

Despite the raging insecurity and misogyny of its creator, often reflected in the characters, it's truly brilliant. The vampire show about what a horror it is to be a teenager in high school. BtVS was one of the first TV shows that struck academics, critics and fans as being worthy of study in the same way literature is studied. Star Trek the Next Generation was another, and both are absolutely deserving of all the acclaim. I don't know anything about show running, writers rooms for TV series or movies, and how much is teamwork versus personal vision. Two of the most ground-breaking episodes of television that I've ever seen are "Hush" and "Once More, With Feeling" in BtVS, and both of them were written and directed by Joss Whedon. 

As probably everyone knew but me until recently, among his many stratospherically successful projects after BtVS, Whedon went on to write and direct several of the Marvel movies. I'm not a Marvel fan and I typically avoid the comic book, superhero genre (apologies to Ellen, one of my besties and a perfect SuperGirl at ComicCons). He also co-wrote Toy Story. In a stroke of all-around genius, it was Joss' idea to transform Buzz into a character who doesn't know he's a toy. The writing is inventive, kind hearted, and so off-beat funny (for Gen-Xers in particular, because we owned and played with all those toys) that it mainlines childhood nostalgia in the same way A Christmas Story did for my Dad. 

On the flip side, Whedon also wrote Alien: Resurrection. As a spooky scifi fan, Alien and Aliens are two of my top 10 movies of all time. Buffy the Vampire Slayer is now in my top 3 TV shows of all time. But Alien: Resurrection is hot, vulgar, misogynistic garbage that got a lot of credit for not being as horrid as Alien 3. FYI that bar is so low that a fat dachshund could clear it. It takes all the bad, disturbing vibes in BtVS and puts them in a grown-up monster movie that's mean to both the heroines and the female alien.  

Sidebar: my Dad grew up in Hammond, Indiana, in the same neighborhood, went to the same high school as Jean Shepherd, and owned all of his books. He was a decade or so younger, but that movie literally was his childhood, down to the furnace clinkers, the department store line to see Santa, and the double dog dares on the playground. 

Similarly, when I first watched and fell in love with Stranger Things, I couldn't figure out exactly why it resonated with me so much. It wasn't just the time period, but they managed to perfectly capture the feeling and environment of growing up in that era. Then I found out the Duffer brothers grew up in Durham, NC. When I turned on the closed captioning (don't laugh, you'll do it too one day and you'll never turn it off) I realized that several of the places they reference - including Lochnora where the Wheelers live, and the location of Mirkwood at the intersection of Kerley and Cornwallis - were actually in my neighborhood. I grew up in Winston-Salem, but Durham has been my second home for decades. I used to own a house on Kerley Road about 1/4 mile beyond the intersection with Cornwallis, which dead ends into Lochnora about a mile away. The show itself is set in the fictional town of Hawkins, Indiana, which may as well be a stand in for Greencastle, Indiana, where I went to college (all hail DePauw, go Tigers!). 

I think Buffy the Vampire Slayer may be a cultural touchstone for millenials. It serves as a near perfect reflection of their experiences in high school into young adulthood, in relationships, in friendships and with authority figures. People who grew up in southern California may also agree they nailed the environment and ethos of that community. Which is why, I think, that the rabid defenders of Joss Whedon and the series couldn't quite see the misogyny and toxic "normalized" relationships that were being depicted onscreen at the time. It requires distance and perhaps a bit of wisdom that comes with age to look back at something and realize it was kind of screwed up. 

I am forever grateful that my life or career doesn't get replayed on the Jumbotron. I can't imagine being an athlete, an actor, a musician or a celebrity of any field where my development, triumphs and mistakes are memorialized for the pundits of the world to pick apart. The downside of having such a rabid following is that Buffy fans practically dictated the direction of the show at times. Two notable casualties: 

• Riley, played by Marc Blucas (former Wake Forest basketball player!), had the unenviable task of being Buffy's first love interest post Angel. The character and the actor were deemed boring and unworthy by the (heavily teenage girl) fanbase, and ended up leaving the show after little more than a season, despite exceptional support from the writers and Joss himself. Note to fans everywhere: first, give some grace to people who have to perform in front of an audience as they hone their craft; second, what about crazy hot, military, corn fed Iowa boys do you not like? And he was both funny as heck and painfully vulnerable when he was squaring off with Angel and Spike. Good luck Marc, I hope you've found a better base. 
• On the upside, Charisma Carpenter's character of Coredelia was written as vapid and shallow throughout the first few seasons, and of course she hooks up with Xander the dweeb (hello, Joss, how many fantasies were you actually living out?). Despite being one of the most uncharitably written characters I've seen in a major series, she became popular enough to be moved over to the Angel spinoff, which is a testament to her acting and audience appeal. Until Joss sexually harassed her out of a job. Though I did listen to a podcast with James Marsters who stated she was cut when he was brought onto the Angel series because they couldn't afford both of them. James seems like a stand-up guy, but it was hard to hear, particularly in light of everything that has since been disclosed. Go be a bad ass, Charisma. You deserve all the love. 

So far I've made it through the middle of Season 6, where Buffy and Spike are hooking up. Not sure how much more I'm going to watch. Not because it's gotten bad, but because Buffy is so depressed and gloomy that it's dragging me down. Also, I love Tara and Willow and I know what's coming and don't want to go through it. 

Thanks, Joss and everyone who worked on the show. Even 25-ish years on, despite all the controversy and issues, it stands as a phenomena that changed the way we all view television. 

Building a Yacht in the Shire

The Wall Street Journal's mansion of the week is another ode to ostentatious wealth colliding with whimsical, undisciplined design. Let's tick off the obligatory story lines first:

• The owners bought the land for $2.8 million in 2011. It's 60 acres outside of Cleveland in the "wealthy village" of Hunting Valley, OH on the Chagrin River. 
• The owner founded his own business, which was bought by Blackstone in 2017, and the estate was developed in 2018 at the cost of $20 million. 
  
• The husband unfortunately passed away in 2021 at 63 years old, and his wife is selling the house and building another house elsewhere. 
• The state record for a home sale in Ohio is $10 million, and this house is asking $20 million. 

The lead picture in the WSJ article is an aerial shot of the house from the back. 

My first reaction was "holy cow, did you hire an architect and if so, did they hate your guts?" The house moves from a rhythmic, charming, predominantly shingle style* home on the right, to a disorganized blob of masses on the left with a jumble of competing roof lines. 

The Zillow listing for the home has many more pictures, is better organized, and leads with a view that flatters the home, making it look integrated and cohesive. I suspect some of the rooms on the side were expanded or included as late additions, which might be why they appear a bit haphazard in the overall design. 

*The shingle style of architecture is uniquely American. It first developed in coastal areas of New England in the mid 19th century, then migrated across the country and abroad. Shingle style houses tend to be wonderfully asymmetric, often incorporating round or polygonal towers, wide porches, a variety of windows and rooflines. Balancing such elements into a cohesive, well flowing design requires both exceptional creativity, a keen sense of proportion and balance, and disciplined restraint. 

After leading with aerial shot from the back of the house, the WSJ story follows with two pictures of the man cave - a home barbershop and the golf simulator. 

Why anyone wants or needs a 20,000 square foot home is beyond me, but as foreshadowed in the first picture, we are about to dive into 20,000 square feet of nearly relentless, joyless, busy brown. Punctuated by a few rooms of equally overbearing combinations of gray. I wish I were kidding. 

There are some gorgeous mosaics throughout the home. This is probably my favorite room, which is a shame because it's likely among the least used. But it's stunning. I'm not sure why there are zippers on the dining room chairs. Are they designed by Tom Ford? That's one of his signatures, though I'm not sure he does a home furnishings line. Is it risque to unzip them? I never get invited to those dinner parties. 

If you look through the pictures the quality of the materials and craftsmanship is impressive. The quirks come from stuff like this:

Mini rant: I hate vessel sinks. They're difficult to clean around, the water splashes straight up at you when you turn it on, and while I'm all for some personal touches, this looks like a hat for one of the Daleks in Doctor Who. Also, if you've never renovated or built a house, let me tell you that putting the plumbing fixtures on the wall AND mounted to / through the mirror is abominably expensive. I bet their plumber bought an AirStream after they finished that house. 

But this has to be the funniest room. When I saw it, I immediately thought "Bilbo Baggins goes on a Carnival Cruise". Swear to god. Then I read the house listing on Zillow, which mentions that the interior designer is a World Renowned (their capitalization, and ... stop it) yacht interior designer. Again, the craftsmanship, the proportions, the design is gorgeous. For me, it's just too much of everything. 

I adore many styles of architecture and design. In my own space I tolerate very little visual movement and veer towards minimalism. My cabinets had to be changed from natural birch to white oak at the last minute, and I'm still struggling to deal with how much color and visual distraction they add, which I wasn't prepared for. 

The natural pools connected by the waterfall and stream in the back of the house are beautiful, and absolutely my favorite feature of the property. I hope they had big, joyous, coon hounds who splashed into the pool and chased deer everywhere. My dream is to be able to add a wildlife pond at my house, install a camera and see who shows up.

A Layperson's FAQ on Chevron Deference

Between Supreme Court decisions and the presidential debate, it's been an exciting few days. Predictably, nowhere has the reaction to these events been more unhinged than on Twitter. My own feed is dominated by dog Twitter, the internet hall of fame, and the comic genius behind the Oklahoma Department of Wildlife Conservation account (who just announced she is moving on, breaking the hearts of tens of thousands of her devoted fans). Still, some law content leaks in because I'm a closet SCOTUS (Supreme Court of the United States) junkie, and it's been ... what's the opposite of enlightening? 

So here we go, a layperson's FAQ on Chevron deference. The usual caveat applies: I am not a lawyer, I have never been to law school, and any mistakes or misunderstandings are entirely my own. 

What was the recent SCOTUS decision?

In what was arguably the most consequential decision to date of the current term, the court ruled in Loper Bright v Raimondo to overturn the Chevron doctrine, in a 6-3 vote along ideological lines. This doctrine, also referred to as Chevron deference, was a standard established by SCOTUS forty years ago in their opinion to Chevron v Natural Resources Defense Council (1984).  

Yeah, so far that's not helping

Three branches of government: legislative, executive and judicial. 

The legislative branch (Congress) writes laws and federal statutes. Congress also creates administrative agencies that are granted the authority to implement and enforce these statutes. 

The agencies, whose heads and executives are appointed by the executive branch (White House), interpret the statutes to write rules, regulations, conduct enforcement and impose penalties for violations of the laws and statutes. 

The Administrative Procedures Act (APA), which Congress enacted in 1946, "serves as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation." The APA gives the judicial branch a role in policing the statutory boundaries. Federal courts are directed to "set aside agency action" that is "not in accordance with law" or "in excess of statutory jurisdiction, authority or limitations". 

Ok, School House Rock. What was Chevron deference?

Chevron was a doctrine, created by SCOTUS in their 1984 opinion, that outlined a two-step framework for determining whether or not the court should apply its own interpretation of a statute, or defer to the agencies' interpretation, when the agencies' scope of authority or interpretation is challenged through litigation. 

From Chevron Deference: A Primer (2023) by the fiercely nonpartisan Congressional Research Service (excerpts from page 2 of 35, edited for brevity, emphasis added): 

When Congress delegates regulatory functions to an administrative agency, that agency’s ability to act is governed by the statutes that authorize it to carry out these delegated tasks. In the course of its work, an agency must interpret these statutory authorizations to determine what it must do under the statute and what it may do within the limits that Congress has set. When agencies act pursuant to those interpretations, the scope of their statutory authority is sometimes tested through litigation. Courts that review challenges to agency actions may give special consideration to agencies’ interpretations, particularly of the statutes they administer. This special consideration is known as “deference.” Whether and when courts should defer to an agency’s interpretation of a federal statute, rather than apply the court’s own interpretation, are critical questions in administrative law and judicial review of agency action. 

The Chevron framework of review usually applies if Congress has given an agency the general authority to make rules with the force of law. Within that framework, Chevron often requires courts to accept the statutory interpretations that underlie the agency’s implementation of that general authority. Where a statute is susceptible to multiple reasonable interpretations, the Chevron framework requires courts to defer to an agency’s reasonable interpretation of the statute. The Chevron framework, accordingly, shifts interpretive authority from the federal courts to agencies in certain circumstances. 

 

If Congress has delegated authority to the agency to decide a question—that is, if Chevron applies—a court asks at step one whether Congress directly addressed the precise issue before the court, using traditional tools of statutory construction. If the statute is clear on its face with respect to the issue before the court, the court must implement Congress’s stated intent.

 

If a statute is silent or ambiguous with respect to the specific issue, the court then proceeds to Chevron’s second step. At step two, courts must defer to an agency’s reasonable interpretation of the statute. Courts employ a variety of tools to determine whether an agency’s interpretation is reasonable, including some of the same interpretative tools used in the step one analysis. 

The Primer is outstanding and worth reading in its entirety. 

Seems reasonable. What became problematic? 

Over time using the Chevron framework became messy. From the Primer:

Application of the Chevron doctrine in practice has become increasingly complex. Courts and scholars alike debate which types of agency interpretations are entitled to Chevron deference, what interpretive tools courts should use to determine whether a statute is clear or ambiguous, and how closely courts should scrutinize agency interpretations for reasonableness. A number of judges and legal commentators have even questioned whether Chevron should be overruled entirely. 

In later decisions SCOTUS modified it, blurred it, side-stepped it and created exceptions to it. Still, it was heavily utilized for about 40 years and has been cited in 18,000 opinions across all federal courts (see here and here). However, SCOTUS itself hasn't utilized the Chevron doctrine in a decision since 2016. Legal scholars and court watchers have long referred to Chevron as a zombie precedent, with Justices Alito and Gorsuch stating outright in comments from 2022 that it should be overruled (see the Primer, pages 20-21 of 35). 

Part of the complexity was because government agencies, typically at the direction of the executive branch, also began to write new rules, or (at times wildly) broaden interpretations of their authority in a way that took advantage of a statute being "silent or ambiguous" with respect to an issue. In certain cases an agency's rules and interpretations would change with each turnover in the executive branch. 

I'm shocked! The administrative state = the deep state? 

That's certainly what all the celebrations and hysteria on Twitter would lead one to believe. There's a good article on The Verge here that summarizes some possible areas of impact now that Chevron has been overturned. They mention:

• The FCC's regulations covering broadband and net neutrality; 
• The EPA's rules for carbon emissions and greenhouse gases, and 
• The FTC's regulation of big technology companies. 

It's worth noting that despite the "OMG this is such a power grab by SCOTUS" statements at the beginning, most of the experts that they cite in each case state that Chevron has been dead for some time and the court has migrated to using the Major Questions Doctrine as its standard for adjudicating similar questions of statutory interpretation. 

The what? And this better be short because I'm running on fumes.

As SCOTUS found the Chevron framework problematic, it began to augment or replace it with what is now referred to as the Major Questions Doctrine. From the Congressional Research Service primers for both Chevron and Major Questions:

Under the Major Questions doctrine, the Court has sometimes declined to defer to an agency interpretation under Chevron in “extraordinary cases” that present an interpretive question of great “economic and political significance.”

Applications of the doctrine rest on a determination by the Court that one of the core assumptions underlying Chevron deference—that Congress intended the agency to resolve the statutory ambiguity—is no longer tenable. Where major questions are at stake, the Court has said, “there may be reason to hesitate before concluding that Congress ... intended” to delegate resolution of that question to the agency. The Court’s hesitation is reflected in survey data of congressional staffers. Of the 137 staffers surveyed, 60% responded that drafters intended Congress—not agencies—to resolve major questions.

In several recent decisions, the Court has placed increasing emphasis on the major questions doctrine. First, in Alabama Association of Realtors v. HHS, the Court explained that the CDC’s eviction moratorium was of major national significance and required a clear statutory basis because the agency’s action covered 80% or more of the nation; created an estimated economic impact of tens of billions of dollars; and interfered with the landlord-tenant relationship, which the Court explained is “the particular domain of state law.” Then, in National Federation of Independent Business v. OSHA, the Court considered OSHA’s emergency temporary standard (editor: requiring that workers be vaccinated against Covid-19) to be of major economic and political significance because, in its estimation, it seriously intruded upon the lives of more than 80 million people.

Most recently, the Court’s decision in West Virginia v. EPA marked the first express reference to the major questions doctrine in a majority opinion of the Supreme Court. In West Virginia, the Court rejected EPA’s reliance on a statutory provision that, in the Court’s view, was a “previously little-used backwater.” The Court concluded that it was unlikely Congress would task EPA with “balancing the many vital considerations of national policy implicated in deciding how Americans will get their energy,” such as deciding the optimal mix of energy sources nationwide over time and identifying an acceptable level of energy price increases. For more information on the case, see CRS Legal Sidebar LSB10791, Supreme Court Addresses Major Questions Doctrine and EPA’s Regulation of Greenhouse Gas Emissions, by Kate R. Bowers. 

All of the cases cited above were ones where the government agencies arguably went well beyond their statutory power to undertake actions at the direction of the executive branch. 

What are the takeaways? 

Chevron has been a zombie precedent for close to a decade. Legal scholars, experts and serious court watchers have been expecting this for awhile. Depending on ideology, this can be interpreted as a shift back towards more balanced judiciary oversight of the executive and administrative branch, an exhortation for the legislative branch to start writing less ambiguous and clearly defined statutes, or "a massive power grab" by the Supreme Court. Over time it could have significant ramifications for how these cases are decided, particularly in lower courts, but that's been underway for several years. 

Hysteria aside - and there's been a lot of it - Chevron being overturned will probably stand as the most consequential decision of this term*. 

*The presidential immunity decision is tomorrow. And then come the fireworks! Har har.