The best part of this morning's Journal story about Facebook buying Instagram is clearly Mark Zuckerberg's valuation approach, which I hope will be taught in future M&A banker training sessions: Now, however, Mr. [Instagram CEO Kevin] Systrom found himself in Mr. Zuckerberg's house asking $2 billion for Instagram. Mr. Zuckerberg suggested looking at the value of Instagram as a percentage of the value of Facebook, people familiar with the matter said. Mr. Zuckerberg, who planned to pay for Instagram mostly with stock, asked Mr. Systrom what he thought Facebook would be worth, the people said. If he believed Facebook would one day be worth as much as a company like Google at $200 billion or more, then the equivalent of 1% of Facebook would be sufficient to meet his price, Mr. Zuckerberg told Mr. Systrom, the people said. It was as good an argument as any, considering that traditional ways of valuing a company — by its cash flow, or the sum of its parts — are ineffective when that company makes only one product and gives it away free. "It was as good an argument as any" given that it is a TERRIBLE ARGUMENT. Here it is as best I can make out: (1) Instagram is worth $2bn (2) Facebook is worth $100bn (3) At some point in the future Facebook will be worth $200bn, I guess (4) Therefore $100bn = $200bn (5) Therefore $1bn = $2bn (6) Therefore you should accept $1bn because it's $2bn B+ students in those future M&A banker training sessions will object to using a zero discount rate (for equity!) and/or the failure to probability-weight Facebook's future $200bn valuation; the more advanced may notice that this argument proves that 1 = 2 and is thus a reductio ad absurdum of itself. These numbers are all sort of imaginary anyway so I will concede that this "was as good an argument as any" so long as we recognize that it is also literally the worst argument that it is possible for anyone to make about anything.*

One way you could spend this slow week is reading the "living wills" submitted by a bunch of banks telling regulators how to wind them up if they go under. Don't, though: they're about the most boring and least informative things imaginable and I am angry that I read them.* Here for instance is how JPMorgan would wind itself up if left to its own devices**: (1) It would just file for bankruptcy and stiff its non-deposit creditors (at the holding company and then, if necessary, at the bank). (2) If after stiffing its non-deposit creditors it didn't have enough money to pay its depositors it would sell its highly attractive businesses in a competitive sale to willing buyers who would pay top dollar. This seems wrong, no? And not just in the sense of "in my opinion that would be sort of difficult, what with people freaking out about JPMorgan going bankrupt and its highly attractive businesses having landing it in, um, bankruptcy." It's wrong in the sense that it's the opposite of having a plan for dealing with banks being "too big to fail": it's premised on an assumption that the bank is not too big to fail. If JPMorgan runs into trouble that it can't get out of without taxpayer support, it'll just file for bankruptcy like anybody else. Depositors will be repaid (if they're under FDIC limits); non-depositor creditors will be screwed just like they would be on a failure of Second Community Bank of Kenosha.

It's been a busy day for Federal Reserve presidents: Three of the 12 have made pronouncements today. This morning (really, really early this morning, since he was in Hong Kong), we heard from Chicago's Chuck Evans. Now, we hear from two others, San Francisco's John Williams and Atlanta's Dennis Lockhart, who've just finished their turns on the FOMC, on matters QE.