Tag Archives: debt

07.24.11
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Unbalanced coverage in the US balanced budget debate

I almost never, ever write about politics. I steer well clear of it. However, I’m going to risk it because I’m not sleeping well right now because it looks like my country, the once United States of America, is about to drive itself off a cliff.

When I say the coverage of the almost entirely self-inflicted US debt crisis is unbalanced, I don’t mean lacking objectivity or prejudiced, I mean insane. Balanced coverage would quote Tea Party darling Michele Bachman saying that there isn’t anything to worry about and Tea Party darling Jim Demint saying this is “manufactured crisis” on one side and then queuing up economist after economist, the ratings agencies, major financial companies, Fed chief Ben Bernanke, Treasury Secretary Tim Geithner and just about every other credible economic and business voice on the other side. As Dana Milbank of the Washington Post wrote in referring to 20 Tea Party Republicans as the Default Caucus:

So far, the Default Caucus is disregarding the advice of the Wall Street Journal editorial board, warnings from Standard & Poor’s, the record of Ronald Reagan and even the permission of Grover Norquist, the conservative loyalty enforcer who said that ending the Bush-era tax cuts would not violate lawmakers’ anti-tax pledges.

Not to quote too liberally from Milbank’s column, but this is the problem:

A Pew Research Center poll last week found that 53 percent of Republicans, and 65 percent of Tea Party faithful, believe that the Aug. 2 default deadline can be ignored without major problems.

A responsible press would be driving home the point to all who cared to listen that this will have consequences. Dire ones. It’s not just another government shutdown like 1994. No, even if a default doesn’t happen immediately because the US can’t meet its obligations, the ratings agencies will downgrade the US debt rating almost immediately. That may be abstract to most Americans, but it will have real and immediate consequences. Doing nothing is not an option, and it may already be too late to convince the ratings agencies that the US government isn’t broken.

I couldn’t agree more with US National Public Radio’s On the Media, when they criticised the US media for covering the political drama while almost entirely missing the point. They interviewed Rick Newman of US News and World Republic, not exactly a liberal publication, who said:

the Republicans are digging in their heels and saying no tax increases. And President Obama has basically said he will accept something that is about 75 percent spending cuts and 25 percent tax increases. That is a moderate position, based on the whole range of recommendations we’ve seen, but the media is struggling with how to re – relate to that. So they have to say Obama, on one hand, and these Republicans, on the other hand. And that’s where I think people get pretty confused.

As an American journalist, I was trained in objectivity. It is not a violation of objectivity to accurately portray what is at stake here. With a downgrade, borrowing costs will be higher. Overnight, the cost of serving the US debt will rise because it will be more expensive our basket-case government to borrow money. Recovery? Buh bye! Some economists estimate that for every 50 basis points (half a point of interest) rise in borrowing costs, you can kiss 600,000 US jobs goodbye. (A post by Ezra Klein at the Washington which will be quickly dismissed by conservatives as from a liberal rag.) Interest rates will rise making borrowing for average Americans higher. Americans, who like me, want to buy a house, will find it harder to finance. The already fragile housing market will take another knock. These are on the mild end of predictions. It goes rapidly downhill from there.

A few years ago, I chaired a panel about journalism and the financial crisis. A good friend, Kate Mackenzie from the FT, expressed some justified frustration when time and again the audience asked why journalists didn’t warn them of the coming debt-fuelled financial crisis. The general press mostly missed it apart from a few. However, Kate was right in pointing out that the business press had been covering this for at least two to three years before the crisis hit. I remember reading a Bloomberg magazine cover story titled Toxic Debt, all about CDOs and how they hid ridiculously risky assets including sub-prime mortgages. I read that in the summer of 2007, and I came home telling Suw that this could be 1929 all over again. It nearly was, and now, this crisis is entirely created by childish leaders who want it all and won’t compromise. As for the anti-compromise brigade, I hold Huffington Post liberals almost almost as responsible as the Tea Partiers. Both have made compromise a dirty word in Washington. Compromise is a sign of maturity. You never get everything you want. Most of us learned that on the playground as children.

With this balanced budget debt debacle, we can see this one coming. We can do something about it. We will have no one to blame but ourselves.

As a journalist, I’m paid to pay attention, and I’ve been paying attention from the start. This is serious. The clock is ticking on the US. There wasn’t any time to waste a month ago, and the political posturing has to stop. The Republicans are now accusing Barack Obama of playing politics and looking to his re-election. As if they aren’t. As if the half of the Republican Party queuing up to take his job isn’t looking to 2012. Don’t be silly.

The US is about to face a debt downgrade and possibly a default. It could take us back to the stomach-churning autumn of 2008 when the global economy hung in the balance. This is serious, and it needs some maturity and some compromise. I’d really like to come home, but I won’t be able to move back to the US if the Tea Party wrecks the economy. Man up both Republicans and Democrats. Too much is at stake to pander to those who won’t accept reality. My fellow Americans, get on that phone now. Call your Senator. Call your member of Congress. Your future, our future is at stake.

12.22.08
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Digital versus print and apple and oranges analysis

David Carr at the the New York Times has written a story that must cheer the hearts of newspaper owners as they struggle to find a way to go back to the days of fat returns. Under the headline “Newspaper Shuns Web, and Thrives“, he speaks with a small community newspaper publisher who is enjoying 10% growth by almost choosing to “aggressively” ignore the web.

Ryan Sholin said on Twitter:

Yo, David Carr, apples & oranges is a pretty fricking basic concept, isn’t it? You’re comparing them.

I’d agree. Carr’s analysis is simplistic and just plain wrong. Carr says:

A few caveats before we turn back the clock on publishing history. TriCityNews employs 3.5 people (the half-time employee handles circulation), has a print run of 10,000, and has a top line that can be written in six figures.

A caveat is an outlying piece of data that can be ignored and not threaten the main thrust of the analysis. This is just one piece of data that destroys the analysis that it is the choice of the publisher to ignore the web that has made his business successful. The publisher also has negotiated long term deals with advertisers so that he doesn’t have sales staff, and he has six part-time columnists. I could make a very successful digital or analogue news business on that cost basis.

This isn’t about digital versus print. This is difference between having zero legacy costs, a small building and I’m guessing no print plant. This is a minuscule cost basis versus the high legacy costs of existing newspapers in terms of staff, paper and distribution. As any one knows, US newspapers still make piles of money, just not enough money to cover their costs.

And it’s not just the buildings, printing presses and distribution costs that the newspaper companies are groaning under. It’s the mountains of debt that they accumulated through aggressive, highly leveraged acquisition strategies. McClatchy took on debt to acquire Knight-Ridder. In September, they had to renegotiate a $1.175 bn debt deal to account for their declining revenue. Gatehouse is drowning in debt to the tune of $1.2 bn with a preciptious drop in their stock value, and we know the result of Sam Zell’s highly leveraged buy-out of the Tribune Corporation. To compare a 10,000 circulation start-up print news operation with a media conglomerate like Tribune Corp with $7.6 bn of assets and $12.9bn in debt is ridiculous. It’s about as ridiculous as comparing Digg with a newspaper. They just aren’t comparable creatures in economic scale, business model or editorial mission.

I would argue that the more accurate analysis is that Dan Jacobson, the publisher of the TriCityNews of Monmouth New Jersey has an incredibly lean news organisations with no legacy costs. It has more in common with Nick Denton’s Gawker than the Tribune Corporation. This is not an issue of digital versus analogue but rather the result of Jacobson’s focus on exclusive local content, a recession-proofed revenue strategy and aggressive cost containment.

Newspapers used to be the most efficient way to advertise. Now they aren’t. In the first half of 2007, Google pulled in 39.8% of all online ad revenue in the US. In 2007, Google was 241 in the Fortune 500. In 2008, it leapt to 150. No, Google’s business is not to create journalistic content, but it is competing with newspapers for advertising dollars.

Digital could support a news organisation on its own, if they were willing to radically reduce costs, and I don’t mean simply cutting staff. First, let’s look at the revenue side. There are still too many people running and working for newspapers that believe the 1990s chestnut: The web is great but how do you make money with it? The LA Times web revenue now exceeds its editorial payroll costs. As commenters on Jeff Jarvis’ Buzzmachine point out, that’s not the only cost a newspaper has, but it definitely challenges the view that the web is simply a money pit. The problem isn’t that the web isn’t making money, but that it’s not making enough money at most newspapers to compensate for the decline in the print business, which is still the primary revenue generator for most big city newspapers. (Jeff just got an update from LATimes Editor Russ Stanton on their web success.)

But we also need to look at cost containment. Newspapers can still radically reshape their businesses to take advantage of digital efficiencies. I often talk about when I worked for the BBC in Washington. About 8 years ago, the bureau set up its first digital editing suite with a blue-and-white Power Mac and Avid video processing, storage and software. The total cost was around $80,000. In 2005, they replaced the system with a PowerBook, Final Cut Pro and a portable RAID array for roughly $12,000. Faster, better, cheaper and portable. Expensive equipment and production doesn’t necessarily mean better quality, and a good professional can produce 80-90% of the quality at a fraction of the cost. This may sound odd to people who know me, but invest in the people, not the kit. I’d rather have a job than a shiny new computer any day.

For many large chains neither the web, print nor anything short of selling porn would dig them out from underneath the mountain of debt they have accumulated. Highly leveraged consolidation is the problem and will be the death of some of these chains. This isn’t an issue of digital versus print. Now that the credit bubble has bust, leaner and more efficient will always win the day over highly leveraged and highly costly.