Debits and Credits

Journal can't get out of own way; Bloomberg blows up McClatchy; Kelly's conflicts, etc.

The Wall Street Journal has a difficult job covering itself and the radical changes it faces with News Corp.’s takeover of Dow Jones & Co. Even so, it did a poor job last week.

The Journal’s Thursday coverage of the takeover’s close reads like a warmed-over Dow Jones press release:

Appointment of the new management team is the beginning of what many expect to be a series of sweeping changes at the company…

Unfortunately for Journal readers, but happily for those of The New York Times, the latter published a story that actually details some of those changes and how sweeping they will be:

But Mr. Murdoch has already seized the reins of Dow Jones and The Journal, setting in motion what amounts to an overhaul of the look, content and staff of one of the world’s most prized newspapers.

“He’s not wasting any time,” said one Dow Jones executive…“He’s already calling the shots, making decisions. We know that’s his M.O., but it’s amazing to see.”

There has even been talk of a front page with articles short enough to start and end there rather than continuing on inside pages, and of taking the words “Wall Street” out of the paper’s name to give it broader appeal, according to people who have been briefed on the matter. Both ideas were quickly dismissed…

The Times also tells us that the daily Marketplace section—known internally as the “second front”—is a goner by summertime, though the Times doesn’t say what might replace it, and that up to three dozen news staffers are being cut to make room for newcomers. That leads the Times to a smart bit of analysis:

A year from now the newspaper could have a large contingent of reporters and editors hired under Mr. Murdoch and not rooted in The Journal’s traditions. They would also be people who did not live through the anxious months when many newsroom employees opposed the takeover and questioned Mr. Murdoch’s journalistic ethics. “It has the makings of a pretty big cultural shift,” a veteran reporter said.

None of this made its way into the Journal.

As we said, it’s hard to cover yourself. After stumbling at the start of the News Corp. deal, when top editors sat on news of the offer for a week until it broke elsewhere, the Journal recovered its poise. The difficulty increases now that Journal reporters and editors are News Corp. employees. But that very difficulty makes the task all the more important.

Oddly enough, there was insightful criticism of News Corp. in the WSJ on Thursday. But it came not from the Journal newsroom, but from the daily column it farms out to, of which Dow Jones is a minority owner.

Breakingviews notes that News Corp. sold its 41 percent stake in Gemstar-TV Guide International a week earlier for $1 billion—about $6.6 billion less than what it paid for it.
It’s a new world, but it’s still unusual for a leading financial paper to outsource such a basic a function as business-news analysis. It seems especially wrong-footed for the Journal to leave it to outside commentators to dissect News Corp.’s deal-making skills, particularly on the day the company closed on Dow Jones.

A big “whoops” at Bloomberg this week cost some investors a lot of money. A misleading headline on the wires caused newspaper chain McClatchy’s stock to shoot up 32 percent in less than 10 minutes, only to give the entire gain back in twenty-four hours.
On Thursday at about 3:15 p.m., according to a transcript, a Bloomberg TV anchor asked investor Michael Price about McClatchy Newspapers Inc (ticker: MNI):

Price: The margins are the best in the business. It is thinly controlled. It is up to the family to take it private at some point.

Anchor: You think they will?

Price: Yes.

The markets didn’t think much about the interview, and the stock continued to slide for the next half hour or so to put McClatchy down 3.5 percent on the day. Then a few minutes before the market’s close, Bloomberg put this headline on the wires: “Michael Price Says McClatchy Family May Take Company Private.” Check out the chart via Marketwatch:

The headline wasn’t the whole story, because it left out the crucial “at some point” qualifier. Traders make split-second decisions and rely on the financial news services to give them fast, accurate news. It took less than 15 minutes for the market to begin figuring out Bloomberg had slipped up. By then McClatchy’s market capitalization had jumped by about $300 million, only to vanish by the closing bell on Friday.

Bloomberg representatives didn’t respond to The Audit’s requests for comment.

New York Post media columnist Keith J. Kelly reports on the race to write a book about News Corp.’s takeover of Dow Jones. Vanity Fair columnist Michael Wolff has a million-dollar deal with Doubleday, while Wall Street Journal reporter Sarah Ellison is working with Houghton Mifflin on what is “believed to be a $400,000 deal.”
Wolff thinks Ellison has a conflict in covering the company she works for:

“The problem with someone from The Wall Street Journal writing a book is that they are inevitably conflicted,” said Wolff. “Either they’re bitter that Murdoch bought the place or they are trying to save their job.”

This conflict-of-interest-ism is obnoxious. What’s Wolff and Kelly’s point? She shouldn’t write the book? And Kelly should have noted that Wolff’s biography is the authorized one, that is, the one with which Kelly’s (and now Ellison’s) boss will cooperate. And since Kelly won’t, we’ll mention this authorized deal followed Wolff’s highly positive story on Murdoch. Finally, when writing about News Corp., Kelly, the busy conflict-of-interest cop, should tell readers who aren’t in on the joke that the Post, too, is owned by News Corp.

Still hazy on what collateralized debt obligations are? It’s safe to say you’re in the majority. After all, it seems the bankers who created them didn’t exactly know either.

Portfolio’sWeb site gets creative, using cartoon water buckets to illustrate how CDO tranches can run out of cash:

Think of mortgage payments as small trickles of water that all flow down into a much larger pipe. When a bank creates a security backed by mortgage payments, it diverts that pipe into a bucket. That bucket, or an AAA-rated tranche, is then sold to investors

Check it out. Otherwise, you’re stuck with standard business-press explainers, which hurt the brain:

The Times tries in early November:

The trouble stems from the banks’ significant involvement in collateralized debt obligations, which raise money by selling bonds to investors and using the proceeds to buy other bonds, many of which are backed by subprime home loans.

In August, the Journal tried a quiz:

What does CDO stand for?

A. Covered debt option

B. Chief debt officer

C. Capital divestment offer

D. Collateralized debt obligation

ANSWER: D. A CDO is a collateralized debt obligation, a bundle of bonds that often contains many securities backed by subprime mortgages. What this means, in plain English, is that instead of banks bearing the whole risk of lending to less creditworthy borrowers, they package their loans together and sell them to investors.

Our advice: Keep trying.

The Bush Administration hasn’t given reporters much over the last seven years, but credit the effort of the Washington Post’s Robert O’Harrow, who’s still digging. He explains how he got the whiteout treatment when he filed a Freedom of Information Act request for State Department records on Blackwater Worldwide:

A review of the just-released documents — papers regarding the Worldwide Personal Protective Services contract — found that about 169 of the 323 pages released were blank or nearly so.

Dozens of the documents are devoid even of page numbers, never mind information about spending patterns and other questions that have dominated recent congressional hearings about Blackwater’s roles in a series of deadly incidents.

We hope O’Harrow or the State Department can fill in the blanks soon.

Finally, the business press is beginning to get its arms around the staggering proportions of the subprime story, as a piece last week by Greg Ip, Mark Whitehouse, and Aaron Lucchetti on page one of the Journal shows.

This sprawling and arcane story doesn’t lend itself to eloquent explanatory pieces, but these reporters put together an all-important big picture out of the puzzle of write-downs, foreclosures, and collateralized debt obligations.

Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.

In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide. An examination of the resulting crisis shows that it is comparable to some of the biggest financial disasters of the past half-century.

That’s a credit.

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Anna Bahney is a Fellow and staff writer for The Audit