Wrong blogs are better than bad journalism

By Felix Salmon
May 4, 2009

In traditional journalism, you publish what you know for sure as quickly as you can while being assiduous about maintaining accuracy at all times. In financial markets, traders run with rumors and gut feelings and outright guesses on a regular basis, on the basis that they’ll change their mind (or, more to the point, their position) if they turn out to be wrong. And one of the reasons why traders like blogs — and why many journalists don’t like blogs — is that blogs tend to me more traderish than traditional journalism: they’ll run with stuff before it’s nailed down, without checking it, in the full knowledge that it might be wrong. How far they go in that direction depends entirely on the blog, which is one reason why blog readers need to be critical readers: you can’t read a blog and simply know, based on the reputation of the parent institution, that you can trust it implicitly.

For instance: this afternoon, a meme took hold in the blogosphere, started by Zero Hedge, and picked up by the likes of Clusterstock, that there had been some kind of unconscionable bullying of Chrysler holdouts by the White House. Wonderfully, the blog entries caused some real reporting from Dealbook, which got on-the-record denials of any such bullying from both sides. The denials don’t mean that negotiations never got heated at any point of course, but they do mean, I think, that the charges of fascism are maybe a bit overblown.

Blogs can also be sloppy: Clusterstock’s Henry Blodget, for instance, in asking for banks’ senior creditors to be part of any recapitalization by converting their debt to equity, says this:

The best way would have been to seize the banks and restructure them. Since Geithner has opted against the route, however, the next best way would be to convert unsecured bank debt to equity, not just the taxpayers’ preferred stock (the taxpayers’ preferred stock should have been senior to all the bondholders, but that’s spilt milk at this point).

But this just makes no sense: if the taxpayers’ preferred stock had been senior to all the bondholders, it wouldn’t have been preferred stock at all: it would have been a liability of the banks, not equity, and would have done no good whatsoever. You can’t make a borderline-solvent bank healthy by increasing its liabilities, only by decreasing them.

While I’m at it, I should also explain why Blodget’s broader argument is also flawed. He writes, of the plan to convert preferred stock to equity:

The banks will still have the same amount of crap assets on their balance sheets, and they’ll have no more capital available to absorb these losses when they hit. The only thing that will change is that the taxpayer will now get hit first as these losses flow through, instead of getting hit second, as is the case now.

But that’s a huge change, because when common stock holders get hit first, the banks can continue to operate quite happily. If a bank ever reaches the point at which its preferred stock holders get hit, on the other hand, it will pretty much automatically get taken over by the FDIC or otherwise cease to exist in its former form. So converting preferred stock to common really does strengthen a bank and make it more likely to be able to survive future asset write-downs.

Still, I’d much rather read inflammatory or even just plain wrong stuff on blogs than have to wade through execrable nonsense like Vanessa O’Connell’s 2,700-word article on discount shopping in the WSJ magazine. She’s great at (under)stating the bleeding obvious:

According to America’s Research Group, shoppers now view 70 percent off as a great sale, versus the 40-to-50-percent discounts of the past. At the 70 percent level, it’s extremely hard for traditional retailers to make a profit.

But more seriously, she’s also great at blithely parroting numbers without any indication of what they mean:

With carefully managed flash sales of top designer names—from Marc Jacobs to Missoni—it has amassed one million members within 18 months of launching, and the company says it’s on track to multiply its annual revenue to about $80 million, up from less than $7 million.

“On track”, of course, can mean anything — or nothing. If the company wants to give the WSJ its sales numbers, it should give the WSJ its sales numbers. If it doesn’t want to give out those numbers, that’s also fine. But if it doesn’t give out its sales numbers, the WSJ shouldn’t treat it as though it has revealed something interesting or important all the same. Especially when the journalist goes on to contradict herself on much less important numbers pertaining to the company later on in the piece:

Once you are invited to join the online sample sales at Gilt Groupe, get ready. To work up excitement, Gilt blasts an 11:50 a.m. email to its massive member list, with images of some of the designer clothes, shoes and accessories that will be offered at the noon sale time. At 11:59 a.m., there are typically somewhere between 30,000 and 50,000 people on the site, waiting for the clock to tick. Most of the merchandise sells out within the hour…

By 11 p.m., more than half of the women’s styles that went on sale at noon are generally sold out.

So, how long does it take for most of the inventory to be sold? One hour, or eleven? Did O’Connell, or her editors, bother to check? It seems not — despite the luxury of long lead times on the magazine.

The problem here, of course, is that because the piece is appearing in a fluffy lifestyle magazine, rather than in the newspaper proper, no one particularly cares about the content — it’s mainly just there to look glossy and help sell watches. Which is never going to be much of an issue on a blog. If you’re reading something on a blog, it’s not because it was commissioned as a high-concept way of filling the feature well, but rather because someone genuinely has something to say and wants to communicate it. You might need to approach with skepticism — but you should do that with all journalism, not just blogs. And if you’re reading critically, you can generally get much more insight from blogs than you can from carefully-circumscribed journalism. They might sometimes be wrong — but at least they’re provocative, interesting, and useful. Which is more than can be said for just about anything in the WSJ magazine.

Journalism can be fantastically good, of course — as can blogging. But when it’s bad, journalism, even in a well-respected publication, can be just painful — more so than just about anything you’re likely to find on a reasonably-respected blog.


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I’m having a hard time figuring out what people are proposing. First of all, from The Economics Of Contempt:

“The whole point of Treasury’s proposed resolution authority is to extend the FDIC’s systemic risk exception to the insolvency regime that governs large bank holding companies (e.g., Citigroup, BofA, JPMorgan, Wells Fargo). If there’s no systemic risk finding, failed bank holding companies will still be handled by the bankruptcy courts. Treasury’s proposal gives the government the same kind of discretion in cases of systemic risk that the FDIC has under the Federal Deposit Insurance Act.”

Here’s the plan:

“March 25, 2009

Treasury Proposes Legislation for Resolution Authority

Treasury Secretary Timothy Geithner on Monday called for new legislation granting additional tools to address systemically significant financial institutions that fall outside of the existing resolution regime under the FDIC. A draft bill will be sent to Congress this week and several key features are highlighted below.

The legislative proposal would fill a significant void in the current financial services regulatory structure and is one piece of a comprehensive regulatory reform strategy that will mitigate systemic risk, enhance consumer and investor protection, while eliminating gaps in the regulatory structure. ”

So the govt is moving towards being able to seize the large banks, but they don’t have the power as of yet. That leaves you with various alternatives, one of which is owning more of the stock, and running the company. This would have a few problems, in that we could still lose a lot of money, and foreign investors and companies will consider us owning the bank to be guaranteeing it. As far as I know, there will still be other shareholders, and they will have certain rights. It could also involve us in foreign politics, as in Mexico with Banamex. Still, it might be better than the current plan.

Now, I thought that this is what Stiglitz and Krugman were proposing, as well as anyone who was complaining that we were investing money but not getting control. After reading Blodget and Krugman, it would be nice to have a clear explanation of exactly what they’re proposing. Are they saying that all creditors would becoming shareholders, but we’d control the bank, because we’ll have more shares? How is that done? What exactly is the alternative to what Geithner’s doing?

I found that newspapers like the NYT or WSJ make numerous mistakes in areas where I’m an expert. I have to assume that they are just as bad in areas where I’m not an expert. So, I concluded long ago that one simply can’t trust newspapers to get it right. I prefer an expert blog to a newspaper any day. Picking the right blog for any particular subject area is not trivial, but the process itself is helpful.

Posted by Mike | Report as abusive


Surely you realize that if a bank is insolvent (that is, assets/liabilities < 1) then the infusion of debt capital enhances solvency as it brings A/L closer to 1.

You’re right about keeping preferred around, though.

Also, why are we listening to Henry Blodget? Does he think my amazon stock is going back to 400 a share?


Posted by HAL | Report as abusive

There are at least three advantages of a blog by an expert over a newspaper:

a. You\’re getting the expert\’s opinions directly, not filtered through the journalist\’s misunderstandings, and then edited for length by an editor who knows less than the journalist.

b. The expert is usually writing for both laymen and other experts. If he says something careless or stupid or lies to you to achieve some other goal, he\’s doing that in front of his colleagues, who will end up with a lower opinion of him as a result.

c. Most bloggers aren\’t in a position to be useful channels of propoganda or spin, and so they aren\’t usually targets of the elaborate media-control techniques that the white house and some large companies use.

Ideally, the advantage of a newspaper should be that it has a long-term reputation for accuracy to keep up. But I\’ve spent the last several years noticing almost constant examples of journalists getting all the details wrong in areas where I knew enough to care about the story, and many cases where a lot of the newspaper and TV news coverage of some issue is obviously being spun in a certain direction. (Remember the MSM discussions of the threat from Iraq during the runup to the war?) So while individual journalists sometimes have some reputation capital, few of the big news sources do.

Posted by albatross | Report as abusive

The media has adopted the same strategy as the political parties: Create a lie from half truths and innuendo, see how far it gets you. Use it to create discord and controversy to attract attention. Attention means ratings. Ratings mean money. If you don’t get caught build upon the lie and point to the previous lie as a basis for the second lie. If you get caught simply retract, divert the attention or make a different lie. Good lies always incorporate some aspects of the truth. Soon the truth becomes so convoluted by the half truths and lies, opinions evolve into the basis for truth. Opinions are like…well we all have one. The real question is whose opinions are we expressing? Our own personal opinions derived from a personal analysis of the available data? Opinions based on the data available to us via sources that may or may not be based on the actual facts; facts that may or may not be accurate but simply part of the lie. Or are the opinions we express merely the opinions of others who pay some to espouse their opinions as their own? I suggest you consider the source and the veracity of the data you ingest and regurgitate as your opinion. The essential question remains. Who can you believe?

Posted by Ed | Report as abusive

For OPINION and ANALYSIS – the only areas Felix is really dealing with in this post – he makes a good case that you’ll do better to read the BEST bloggers than most (or all) mainstream-media commentators.

But going from there to the broader thesis (encapsulated in his headline) requires leaps of logic, which the above post does not come close to achieving. To wit:

1. You’ve got to select the right blogger(s). Mainstream media carries something like a uniform seal of approval – there is a narrowly defined range of quality among top news organizations’ reporters, editors and commentators, which limits the volatility. I use that word advisedly, because I now propose an interesting analogy: getting your analysis from the media is like indexing, and relying on the blogosphere is like active management. If and only if you can identify managers with “skill” (peer-reviewed work by Ibbotson and others has shown how difficult that is, even given decades of audited performance data), can you expect to outperform the indexes. Identifying well-informed, smart and trustworthy bloggers isn’t as hard as identifying skillful equity managers…but you shouldn’t assume it’s a trivial task, either.

2. The blogosphere, the Internet generally, and even the mainstream media are awash in opinion and analysis. What everyone who champions blogging seems to always conveniently ignore, however, is that opinion without facts is worse than no information at all. And even the best bloggers are and will remain dependent on a separate infrastructure of fact-gathering and reporting, for the raw material (facts) on which to base their opinions. That infrastructure can either consist of a systematically replenished corps of trained, paid and independent professionals – a.k.a. a journalism industry. Or – as bloggers seem to prefer (by default) – it can consist of a formless blob of self-interested rumor mills, blowhards, spoofers and pranksters, untrained and uneducated volunteers … augmented in some degree by outsourced “reporters” earning 3 cents a word (roughly $8 per hour, according to an estimate given me last Friday by an editor who hires contractors to blog on his business news site).

Take your pick.

In fact, Felix, you might say that an important function blogs serve is to lower the barrier to and widen the distribution of dissent and/or attempts to correct the record. This can be directed at both anointed authorities in the mainstream media and one’s fellow bloggers.

For my part, I began blogging initially as an outlet for my reactions to current events and news articles and opinion pieces in the MSM. I tended to think of it as my own, uncurated Letters to the Editor page which did not require approval by any mainstream outlet and which could theoretically spread my voice wider than any one news organ.

In addition to lowering the bar for comment by true subject matter experts, of course, you get a lot of ludicrous troll-sniping and poorly-researched and hastily published dreck, but dems da breaks. I also worry that it will be hard to maintain a healthy and diverse blogosphere if we do not figure out a sustainable economic model, too.

The main issue here is credibility. Newspapers and news network have established credibility by broadcasting to a large audience. Credibility is sometimes confused with the size of the media outlet or news source. A blog being an independent source of information has limited audience. You don’t see a blog in the corner or in a TV set therefore people don’t tend to give them much credibility. That will change as people discover blogs, the new media capability and access to internet becomes widely available.

What are the techniques for equity research?