FT editor Lionel Barber isn’t content with charging for his own content, he also reckons that every other news organisation is going to follow suit. Here are some quotes from a speech he gave last night:
I confidently predict that within the next 12 months, almost all news organisations will be charging for content…
We are seeing sustained and growing revenue as a result of our strategy of premium pricing for quality, niche global content – crucial at a time of weakening advertising. Many news organisations are following suit in charging, latterly the New York Times which had previously come down in favour of free access to its own content.
If Barber is confident that “almost all” news organisations will be charging for content within 12 months, and that the NYT is a gimme, then I’m happy to propose a wager with Mr Barber: that at no time within the next 12 months will the NYT charge for the content it’s currently giving away for free. What do you say, Lionel, a bottle of vintage champagne to the winner?
How far has Ben Stein sunk? Far enough that I feel compelled to resuscitate the Ben Stein Watch, just to share this unfunny and positively harmful TV ad which is now being aired:
“I went to freescore.com and found out my score for free”, says Ben, while an annoying squirrel holds up a sign with the word “FREE” in some horrible brush-script font.
A few points are worth noting here. First, the score itself is not very useful to consumers. What’s useful is the report — if there’s an error on the report, then the consumer can try to rectify it. Secondly, and much more importantly, if you want a free credit report, there’s only one place to go: annualcreditreport.com. That’s the place where the big three credit-rating agencies will give you a genuinely free copy of your credit report once a year, as required by federal law.
You won’t be surprised to hear that freescore.com is not free: in order to get any information out of them at all, you have to authorize them to charge you a $29.95 monthly fee. They even extract a dollar out of you up front, just to make sure that money is there.
Stein, here, has become a predatory bait-and-switch merchant, dangling a “free” credit report in front of people so that he can sock them with a massive monthly fee for, essentially, doing nothing at all. Naturally, the people who take him up on this offer will be those who can least afford it.
The level to which Stein has now sunk is more than enough reason — as if the case for the prosecution weren’t damning enough already — for the NYT to cancel Stein’s contract forthwith. It’s simply unconscionable for a newspaper of record to employ as its “Everybody’s Business” columnist someone who is surely making a vast amount of money by luring the unsuspecting into overpaying for a financial product they should under no circumstances buy.
It’ll also be interesting to see whether the new Consumer Financial Protection Agency will have the authority to regulate this kind of advertising. If it doesn’t, that’s a significant hole in its mandate.
Update: Ryan Chittum notes that the new credit card act requires advertisers to inform consumers that the only place for a free credit report is AnnualCreditReport.com; they will also be required to include a statement that “This is not the free credit report provided for by Federal law.” When does this act come into force?
40. It is an inherent conflict for a journalist to perform public relations work, paid or unpaid.
44. Staff members may not engage in financial counseling (except through the articles they write). They may not manage money for others, offer investment advice, or help operate an investment company of any sort, with or without pay.
Stein isn’t a staff member. But the NYT generally holds its columnists to the same ethical standards.
Update 3: Here’s a good video, to go with Stein’s bad one.
Andrew Baston reports on China’s 7.9% GDP growth in the second quarter:
China’s government only reports year-on-year growth estimates. But when measured in the same terms as other major economies—an annualized quarter-on-quarter comparison—China’s growth in the second quarter could be on the order of 15%, some private economists estimate.
This is proof, I think, that stimulus programs can have spectacular effects, at least in the short term. Although once again Chinese assets are looking pretty bubblicious as a result. Beware the coming crash!
J, at This is the Green Room, is in the middle of a series entitled “Deconstructing the Gaussian copula”. Part 1 was here, Part 3 is on its way, and Part 2 features a really good explanation of CDOs and default correlation:
To understand why tranching compounds the correlation problem, think of the CDO as a rectangular bathtub interspaced with mines that represent each issuer’s default. The CDO investors are aboard a boat on one side of the bathtub, and need to cross to the other side. If the boat hits a mine, that issuer defaults, and the explosion of the mine will damage the boat. The equity tranche has an extremely thin hull and will sink quickly; the senior tranche has a thick hull and can withstand many blasts without taking damage. Finally, the boat moves across the bathtub via geometric brownian motion – which is to say, randomly.
In a low-correlation world, the mines are dispersed uniform randomly across the bathtub; hitting one mine does not imply or necessitate hitting any other. With high correlation, the mines cluster somewhere in the water; hitting one mine makes it relatively certain that another will be hit.
As a consequence, equity investors prefer high correlation. They are indifferent to hitting just a few mines or many, as they are wiped out in both situations. Therefore, they prefer the mines to be clustered, as this leaves more clear paths across the bathtub. In contrast, senior investors prefer low correlation – they can withstand glancing off a few mines, but hitting a cluster would wipe them out.
This helps explain why leveraged super-senior trades turned out to be so much more dangerous than simple equity tranches with a similar expected return. When an equity tranche sinks, you lose a small, light dinghy. When a senior tranche sinks, you lose an aircraft carrier.
U.S. taxpayers should insist that a large part of Goldman’s revenues and profits belong to the American public.
A Goldman-specific tax might be fun to attempt, but there really is a public good to be served in taxing what you want less of — which is too-big-to-fail banks making outsize bets with other people’s money (backstopped by the taxpayer, of course) and then paying themselves billions of dollars in bonuses.
The WSJ’s bailout tax idea is a good one — especially if it rose in line with a financial institution’s balance sheet, and gave those institutions a serious incentive to shrink. If you can’t legislate a hard cap on assets, then you can at least provide some gentle encouragement to get smaller rather than bigger.
Overdraft fees and lottery tickets are both in their own way taxes on ignorance, or at least a lack of sophistication — which is one reason why both should be carefully regulated. Richard Sine, today, adds another item to the list: J-school tuition fees. He has a clear message for deans of journalism schools around the country:
Do not charge so much money to walk through the door that the program is open only to the rich, the idle, or the financially illiterate. That’s not a journalism school; that’s a gold-plated welfare program for your old newsroom buddies, built on the backs of starry-eyed naïfs.
I think it’s fair to say that going to journalism school increases your chances of getting a job in journalism. If J-school graduates are almost by definition financially naive — if they weren’t financially naive they’d never have spent so much money on J-school — then maybe J-school is only serving to increase the number of innumerates working in journalism. Which is a sobering thought.
Josh and Tyler have found a piece of ever-so-scientific research which calculates that the Shanghai stock market will crash somewhere between July 17 and July 27. Which is convenient for me, since I’ll be there personally from July 19 through 25; I should have a front-row seat!
If I had to pick a single day for the crash, of course, it would have to be July 22. When the predictions of a Log Periodic Power Law are ratified by a solar eclipse with the longest totality of the century, how could stocks possibly behave otherwise?
Update: Zubin has found a paper about the effect of eclipses on the stock market.
Remember September, when Goldman Sachs and Morgan Stanley became bank holding companies? The WSJ reported at the time that the banks were “taking steps to reduce their leverage”:
It had become increasingly clear to Fed officials in recent days that the investment-banking model couldn’t function in these markets…
Goldman — and to a lesser extent, Morgan Stanley — has maneuvered through the credit crisis better than other investment banks. But its business model, which relies on short-term funding, is under attack. Some stockholders worry that its strategy of making big investments with borrowed money will go wrong someday, which would make it more difficult for the firm to get favorable borrowing terms…
The most fundamental problem is how to generate profit growth in a world that no longer tolerates high leverage.
I suspect that more than a few of the investors that own these mortgages might not be thrilled to see their contractual rights to foreclose on the property and dispose of it are going to be real happy to learn they’ve just been turned into long term investors in real property. They probably just want to get whatever is left over from a bad investment and lick their wounds for awhile. Instead, the government is going to make them stay in the game.
Let’s nip this one in the bud: there is nothing in this proposal which says that the owner of the property can’t sell it. Indeed, quite the opposite: Baker and Samwick write that “the mortgage holder is free to hold or sell the property as they choose”. Which in turn means there will be no havoc wreaked in securitized mortgages.
Banks, once they’ve foreclosed on a property, are still free to sell it, if they so desire, to the highest bidder. But the buyer of the house will have to continue renting it, at market rates, to its current inhabitants, until they either fall behind on their rent or move out. Which is no great hardship — that’s what landlords do.