Does the Daily Change Everything?

There really isn’t a person who comes out of print–or television news, for that mattter–who doesn’t want to see Rupert Murdoch’s The Daily do everything the press baron talked about in his press conference introduction today. Murdoch hopes his new venture will unlock the hidden space where print will thrive again.

Love or hate News Corp’s content, we all long for the days when print created a milieu of glamor, excitement and urgency either through tabloids, glossies or broadsheets.

The coming of the internet has flattened all content so it appears nearly indistinguishable. Paradoxically, that has been a boon to the big newspapers with broad reach on their editorial staffs and the ability to create interesting multi-media like the New York Times’s info-graphics or the Wall Street Journal’s video content.

Unfortunately, today’s big reveal of The Daily shows us nothing more interesting than a magazine app that refreshes its content on a daily basis. Consumers have already sighed heavily at magazine apps. They’re just not that impressed by adding video and still photography to print and offering some navigation gimmicks like The Daily’s carousel.

This isn’t a slam on Jesse Angelo or the people who put The Daily together. They made a fun magazine app with the tools given to them. But its already too late to generate excitement around turning your iPad from portrait to landscape or getting a video trailer of a new movie. The touch-screen form loses its gee-whiz factor fairly quickly. Words are words; images are images; and video is video. What matters is the quality fo the content, not how that content is interlaced together within an app.

On The Daily’s content, it’s pointless to judge a publication by its first issue. They all take some time to find their voice and bailiwick. But there’s nothing in The Daily that could not come from any other Murdoch publication. (Kinda makes sense, doesn’t it? ) The editorial team is primarily composed of old hands from the mothership.

It may just be that tablets are not going to save what used to be called the print world. Electronic distribution places a premium on immediacy. Who hasn’t been captivated by Al-Jazeera English’s live feed from Cairo this week? Print plays up mediation. Great photos don’t look like real life. They look larger than life.

It is worth noting that The Daily’s 360-degree photos don’t make you feel like you’re actually on the scene. They make you feel like you’re viewing the scene through a periscope.

Murdoch was forceful in making the point that he doesn’t want to see the general interest magazine or newspaper–a place for “news discovery”–die out. That’s a noble desire. Yet it is also a nostalgic one. The web shows us that discovery takes place in other venues now, through search, aggregation and social media.

The Daily is trying wrap its arms around a space that simply no longer exists.

Category: Markets, Think Tank

Watch yields here

We are again approaching a key spot in the 10 yr benchmark note. The yield at 3.49% is at the highest level since Dec 15th on a closing basis and just 3 bps from matching the highest since May ’10. The 30 yr bond yield at 4.64% is now at the highest since late April…Read More

Category: MacroNotes

How U.S. Income Groups Get Squeezed By Food Prices

> Take a look at the chart above constructed from the Bureau of Labor and Statistics 2009 Consumer Expenditure Survey. It conveys a sense of how Egypt’s poverty combined with the sharp rise in food prices sparked the political revolt against the Mubarek government. The chart illustrates how the lower income groups in the U.S….Read More

Category: Commodities, Food and Drink, Inflation

Naive Science and the Nature of Financial Markets

The post was originally published at The Financial Philosopher.

It’s quite true what philosophy says, that life must be understood backwards.  But one then forgets the other principle, that it must be lived forwards.  A principle which, the more one thinks it through, precisely leads to the conclusion that life in time can never be properly understood, just because no moment can acquire the complete stillness needed to orient oneself backward. ~ Soren Kierkegaard

Man is a perpetual naive scientist: Formal scientific methodologies generally involve Describing, Explaining, Predicting and Controlling, which are all extensions of everyday human behavior.  The naivety in this regard, as associated with financial markets, is financial market participants believe that by describing and explaining the past with empirical evidence, they will be given the capacity to predict and control the future.

Additionally, this empirical evidence is often compiled haplessly and contained within a certain bias to a desired result.  Although completely within in the bounds of human nature, this naivety is surely among the greatest of man’s arrogance and foolish behavior.  This is not to say that science is required for financial success but rather a suggestion that a good scientist is almost always preferable to a bad one.

Describing and explaining is integral to understanding or, at a minimum, a means of satisfying simple curiosity; and predicting is often perilous but can be done prudently; however the controlling aspect is almost always tragic.  Because man is so engulfed with the desire for knowledge (of things past and of things future) there is no ability to see himself as he is now.

Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof. ~ John Kenneth Galbraith

Last week’s 662-page Financial Crisis Inquiry Report, for example, is almost useless; however it is one of the only predictable aspects of the entire financial crisis: Humans, to satisfy their desire for control and for narcissistic display of knowledge, will perpetually look to the past and wonder how things could have gone so wrong, then will proceed to rationalizing the event into a means of controlling (preventing) a similar event in the future.

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Category: Philosophy, Psychology

Morning news

ADP said 187k private sector jobs were added in Jan, above expectations of 140k but Dec was revised down by 50k from the outlier report originally given of 297k. The service sector, the biggest % of the labor market, continued to drive most of the gains with a 166k job increase led by small and…Read More

Category: MacroNotes

Blogonomics: A New Chapter

So, this weekend, Mrs. Big Picture tells me that I got a 1099 from Google for $3000. (She handles that stuff, it is not my forté). That’s interesting, I do not recall performing any services for Google – it must be a mistake. Google Adsense is not running here, nor at the old Typepad blog…Read More

Category: Web/Tech, Weblogs

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He is a white-collar criminologist who has spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.


The big news in U.S. regulation last week was the release of the Financial Crisis Inquiry Commission reports. (There’s a major article in the New York Times about Kabul Bank that supports warnings made in my earlier column on that scandal.) The Commission report and the two dissents discuss some of the most important topics in financial regulation, so I will devote a series of columns to the reports, beginning with the dissent of the nation’s leading anti-regulator – Peter Wallison. Wallison’s passion, for forty years, has been financial deregulation and desupervision. The Republican Congressional leadership appointed him to the Commission to serve as apologist-in-chief for the deregulation and desupervison that made the crisis possible.

We’ll explore Wallison’s dissent in greater detail in future columns, but this overview column addresses his three primary arguments: Fannie and Freddie are the Great Satans, they caused the crisis because of demands politicians put on it to purchase the subprime loans that caused the crisis, and all of this was compounded by the Fed’s easy money policies.

This column discusses Wallison’s views on the first two subjects while the crisis was developing. Wallison is well-known for his long-standing criticisms of Fannie and Freddie, but most people do not know the nature of those criticisms. Wallison praised subprime mortgage loan and complained that Fannie and Freddie purchased too few subprime loans. Wallison (correctly) explained that Fannie and Freddie’s CEOs acted to maximize their wealth – not to fulfill any public purpose involving affordable housing. He also explained that they used accounting abuses to make themselves wealthy. He predicted that low capital costs would increase economic growth. Wallison’s prior views contradict his current claims. Aspects of Wallison’s prior views were correct. They support the conclusion that Fannie and Freddie were accounting control frauds.

Wallison’s Ode to Low Interest Rates

Testimony before the Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs
By Peter J. Wallison | Senate Committee on Banking, Housing, and Urban Affairs
(July 19, 2000)

If capital costs are low, more capital will be available for companies that need it, capital will be allocated more efficiently, we will have faster and broader-based economic growth, and the welfare of all Americans will be enhanced.

(Parenthetically, Wallison’s July 19, 2000 Senate testimony disputed the claim that there was a high tech bubble – even as the bubble was collapsing.)

Wallison’s Ode to Subprime Lending

Wallison and his AEI colleague Charles Calomiris co-chaired AEI’s project on financial market deregulation . They were also members of the Shadow Financial Regulatory Committee (a self-selected group of deregulatory scholars and practitioners associated with AEI).

Statement of the Shadow Financial Regulatory Committee on Predatory Lending
December 3, 2001. Statement No. 173

The Federal Reserve is in the process of drafting detailed regulations dealing with alleged problems of so-called “predatory lending” in the subprime mortgage market, and the Congress is considering actions to curb various alleged abuses in this type of lending.

Because much of what is classified as predatory lending involves loans to low-income, minority, and higher-risk borrowers, a central principle that should guide legislation and regulation in this area is the desirability of preserving access to subprime mortgage credit for such borrowers, who are most at risk of losing access to this market in the wake of misguided and punitive regulations. The democratization of consumer finance that has occurred over the past decade has created new opportunities for low-income consumers. This is now threatened by chilling effects that inappropriate regulations and laws might have on the supply of subprime credit to these consumers.

Subprime credit to low-income consumers necessarily entails higher interest rates.
As recent evidence of increasing loan defaults demonstrates, this line of business is risky, and institutions will only be willing to provide such credit if interest rates are sufficiently high relative to risks and other costs of servicing consumers. One of the risks that must be borne by intermediaries is regulatory risk. Laws or regulations that place lenders at greater risk of legal liability for having entered into a loan agreement (for example, state and municipal statutes that penalize refinancings that could be deemed contrary to the interests of the borrower) generally will reduce the supply of beneficial lending as well as predatory lending. Illegal lending, however, would not be reduced; indeed, it would be encouraged.

Wallison Criticized Fannie & Freddie for Making too Few Loans to the Less Wealthy

Wallison’s critique of Fannie and Freddie emphasized their failure to make more subprime loans and loans to minorities.

H.R. 3703 and its Effects on Government Sponsored Enterprises
By Peter J. Wallison | House Subcommittee on Capital Markets
(September 06, 2000)

The GSE form–at least as it is embodied in Fannie Mae and Freddie Mac–contains an inherent contradiction. It is a shareholder-owned company, with the fiduciary obligation to maximize profits, and a government-chartered and empowered agency with a public mission. It should be obvious that it cannot achieve both objectives. If it maximizes profits, it will fail to perform its government mission to its full potential. If it performs its government mission fully, it will fail to maximize profits.

[T]he incentives of their managements [are] to increase their own compensation.

This has direct consequences in the real world. Since 1992, Fannie and Freddie have had an obligation to assist in financing affordable and low income housing. Obviously, doing so would be costly, and would thus reduce their profitability. Studies now show that their performance in financing low income housing—especially in minority areas—is far worse than that of ordinary banks. In other words, despite the fact that Fannie and Freddie receive subsidies to perform a government mission—in this case support of low income housing—their need for and incentives to retain a high level of profitability is an obstacle to their performance.

The Public Trust of a GSE
By Peter J. Wallison | 2002 Federal Home Loan Bank Directors Conference
(November 14, 2002)

Other GSEs–and here I am thinking specifically of Fannie Mae and Freddie Mac–while they hold a government charter, are much closer to the business corporation model. They have actual shareholders, are listed on a securities exchange, and in terms of the way they present themselves to the financial markets are profit-maximizing entities. Although five of their directors are appointed by the president, I am told that these directors are advised by counsel for Fannie and Freddie that their duty of loyalty runs to the corporation and its shareholders and not to any stakeholder or any government mission.

[T]he subsidy realized by Fannie and Freddie is the worst kind of corporate welfare–a transfer of wealth from the taxpayers to both the generally well off (Fannie and Freddie’s investors) and the genuinely wealthy (Fannie and Freddie’s managements).

We understand from the rules of corporate governance that the directors of corporations like Fannie Mae and Freddie Mac are expected to serve the interests of the corporation and the shareholders by seeing to the maximization of profits. The fact that they have a government mission is irrelevant–as is, we are told, the fact that some of them are appointed by the president. So, in a quite literal sense the directors of Fannie and Freddie face a conflict between the government mission of their corporations and their duty to maximize profits for shareholders. Any claim that they are discharging a public trust is an illusion. To the degree that they do anything less than maximizing profits it is to maintain their valuable franchise by reducing their political risk, not because they are voluntarily fulfilling some public trust. It can’t be otherwise; they are legally bound to a duty only to the corporation and its shareholders.

This is very clearly seen in Fannie and Freddie’s activities in affordable and minority housing. Study after study has shown that they are doing less for those who are underserved in the housing market than banks and thrifts. Not only do they buy fewer mortgages than are originated in minority communities, the ones they buy tend to be seasoned and thus less risky. Despite Fannie’s claims about trillion dollar commitments, they are meeting their affordable and minority housing obligations by slipping through loopholes in the loosely written and enforced HUD regulations in this area.

In other words, two companies that are immensely profitable and claim to have a government mission, are doing as little as they can get away with for those who most need assistance–while swamping the airwaves with advertising that they are putting people in homes. This should be no surprise, since their incentives push them in this direction. As shareholder-owned companies, they are maximizing their profits–as they must–while doing just enough to avoid the criticism that might result in the loss of the government support that enables them to earn these profits.

Wallison dismisses the concept that Fannie and Freddie’s senior managers (the “genuinely wealthy”) even consider the public interest – their “government mission is irrelevant” to their decision-making. He explains that Fannie and Freddie’s leaders act like fully private CEOs.

Fannie Mae and Freddie Mac
By Peter J. Wallison | House Subcommittee on Commerce, Trade and Consumer Protection
(July 22, 2003)

Fannie and Freddie suggest that they provide special assistance to minority families hoping to become homeowners. And if they did this disproportionately–that is, helped minorities or low income borrowers more than they helped middle class borrowers–that would be a powerful argument for preserving their current status.

But they do not do this. Instead, according to a study by Jonathan Brown of Essential Information, a Nader-related group, Fannie and Freddie buy proportionately fewer conventional conforming loans that banks make in minority areas than they buy in middle class white areas. Other studies have shown that the automated underwriting systems that Fannie and Freddie use to select the mortgages they will buy approve fewer minority homebuyers than similar automated underwriting systems used by mortgage insurers.

The sad fact is that Fannie and Freddie–two government sponsored enterprises that have a government housing-related mission–do less for minority housing than ordinary commercial banks. Studies have repeatedly shown that banks and other loan originators make more loans to minority borrowers than Fannie and Freddie will buy. That in itself should be a scandal, together with the fact that both companies seek through their soft-focus advertising to create the impression that they are actually using their government benefits for the disadvantaged in our society.

Wallison’s verbal assault on Fannie and Freddie was vigorous. He viewed their failure to make more loans to minorities to be a “sad fact” and a “scandal.”

I will begin the explanation in this column of why Wallison’s lack of understanding of accounting fraud leads him to err in his view that Fannie and Freddie’s senior managers were acting to fulfill their fiduciary duties to the shareholders. (It’s an odd error for a man whose normal premise is wealth maximization. As with “public choice” theory, the neoclassical prediction should be that the CEO will act to maximize his wealth – not the shareholders’ wealth. Term it “CEO choice theory.”) Wallison does not understand that Fannie and Freddie’s controlling officers would come to see that purchasing large amounts of “liar’s” and subprime loans was an ideal strategy for short-term wealth maximization. Nonprime mortgage loans made it easy for Fannie and Freddie’s senior officers to supply the first two ingredients in the four-part recipe by which lenders (and purchasers of loans) that are accounting control frauds maximize short-term accounting income.

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Category: Really, really bad calls, Regulation, Think Tank

Wall Street Pay Hits Record Highs (and . . . ?)

The Finance sector is back to record revenue, and of course, record bonuses and pay. I was surprised to see how much greater the Commercial Bank revenue and comp was versus Wall Street totals. When you think about it, they have many more assets, transactions and commercial activity than Wall Street does, so it makes…Read More

Category: Bailout Nation, Bailouts, Wages & Income

Rally Hits New Heights But Ritholtz Sees Correction Coming

Dow 12,000: Rally Hits New Heights But Ritholtz Sees Correction Coming
Aaron Task
Yahoo Tech Ticker Feb 01, 2011 04:16pm

Category: Media, Video

Daily Show: Back in Black – Meat Edition

Taco Bell fights back against a beef lawsuit, and the Akron Aeros serve the “Nice 2 Meat You” burger: The Daily Show With Jon Stewart Mon – Thurs 11p / 10c Back in Black – Meat Edition Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook Tuesday February 1,…Read More

Category: Humor, Weekend