In a move that should surprise absolutely no one, Rupert Murdoch installed his pal Robert Thomson as the top editor of The Wall Street Journal, ending weeks of silly speculation that he might promote from within the paper.
The Journal fronts the news on its Marketplace section in an admirably forthright story, while The New York Times drops it inside Business Day. What could Rupert see in this mini-Murdoch? The Journal explains:
More importantly, Mr. Murdoch could trust him to implement his vision for the paper. Aside from the six years working together on the London paper, the two men have much in common, though Mr. Thomson is 47 and Mr. Murdoch 77. Both are Australian natives, have Chinese wives and are raising young children. They have vacationed together and even share the same birthday, March 11.
The crack “editorial-independence” board, shocked and awed by the Brauchli blitzkrieg, folded on this one, too, approving Thomson’s appointment unanimously.
The appointment means the fox isn’t just guarding the henhouse (Thomson was already as publisher), it’s running the damn thing now. Expect to see more front pages like today’s, with a four-column, top-of-the-page splash on a completely non-business news story about Ted Kennedy’s cancer. Now there’s a story you won’t be able to get anywhere else.
The Times’ Richard Perez-Pena continues his good work on the Murdoch/Journalstory, scooping that:
Going forward, Mr. Thomson will make cosmetic changes to The Journal soon, and will expand the newswires staff, particularly the number of reporters overseas, according to a person briefed on his plans, who insisted on anonymity because the News Corporation had not approved the release of the information.
And editors, prepare your resumes!
He and Mr. Murdoch have also told colleagues that they see The Journal as having too many editors relative to the number of reporters, so a shift in that balance is expected in the newsroom.
The Times also nicely calls out Murdoch for lying a year ago in an interview when he said he didn’t plan to install any of his people as editors at the WSJ.
And our Sleeping on the Job Quote of the Day, from Thomas Bray, who gets paid $100,000 a year to work on the “editorial-independence board”:
Since then, “the committee had some intensive discussions and did some research of its own,” (Bray) said. “The committee was created to protect the editorial integrity of The Journal, and that would include from pressures from both News Corporation and other sources that would be considered undue pressures,” he said. “We wanted to satisfy ourselves that Robert would, in fact, stand up to protect the integrity of the Wall Street Journal.”
The Guardian has it figured out better from across the pond. Its headline: “Murdoch Tightens Control of Journal.”
Moody’s knowingly boosted unworthy securities
Time to learn a new acronym.
The Financial Times splashes a very interesting scoop on page one that credit-ratings firm Moody’s gave AAA ratings to unworthy securities, called constant-proportion debt obligations, because of a computer bug. The paper got hold of documents that it says show the company knew about the problem with CPDOs in early 2007, but didn’t downgrade the securities until early this year. Instead:
On discovering the error early in 2007, Moody’s corrected the coding glitch and instituted methodology changes. One document seen by the FT says “the impact of our code issue after those improvements in the model is then reduced”.
Ouch. Looks like Moody’s was covering up its coding bug by changing the rules to justify its ratings of the products. The FT says the downgrades this year came amid the cover of “general market declines.” Moody’s tells FT it is now investigating the matter.
The securities should have been rated four notches lower—and that’s by the already massively flawed standards the firm (along with its competitors, though Fitch Ratings did dis CPDOs) was using to rate derivatives. The investments have lost up to 60 percent of their value, an incredible amount for such a highly rated instrument.
Inside, the FT goes deep with a separate story that looks at how CPDOs came to be in the fevered credit bubble of 2006 and includes a graphic showing how they worked. It notes that it quotes plenty of analysts at the time who questioned how the debt securities, which paid an extremely high premium, could be rated so high.
Excellent work by the FT.
Countrywide’s Mozilo is tone deaf
Countrywide Financial CEO Angelo Mozilo didn’t need any more bad press, but he gets it today in the form of a Los Angeles Times story.
Mozilo accidentally copied a Countrywide borrower in a response to the borrower’s e-mail asking Countrywide to refinance his adjustable-rate mortgage, which he can no longer afford and which he’d erroneously thought he could refinance after a year. We might have a twinge of sympathy for Mozilo—the accidental e-mail is one of our Digital Age nightmares—but he called the e-mail “disgusting” because the borrower had used language from a borrower-advocate site.
His original e-mail was sent to 20 Countrywide addresses, including Mozilo’s. Such mass e-mails have overwhelmed e-mail boxes at Countrywide, disrupting its operations and prompting Mozilo’s heated response, the company said.
“This is unbelievable,” Mozilo said in his e-mail. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
We’re sorry Countrywide is dealing with overwhelmed e-mail inboxes, but that pain pales next to that of its overwhelmed borrowers, many of whom were screwed by the company’s reps. Disgusting, indeed.
Housing bill may hit taxpayers hard
In other housing news, the Journal on C1 says a recent mortgage-bond sale may show the worst has passed in that dismal market.
And the NYT in a C1 news analysis writes that the housing bill, which Congress says will protect taxpayers, could actually leave them on the hook for billions of dollars and overload Fannie Mae and Freddie Mac, the teetering government-sponsored mortgage companies that support the entire housing market with trillions of dollars in notes.
Airline cuts leave small cities stranded
The Times looks at the effects of airline cuts on smaller cities throughout the country and finds that nearly thirty have had service eliminated altogether since last year, while about 400 have fewer flights. As if small cities needed to be put at an even starker competitive disadvantage.
The paper reports on A1 that since deregulation in 1978, Congress has provided a fund of about $100 million to airlines to subsidize service in 102 small cities, but the money hasn’t kept up with the costs of flying, which have soared in the last couple of years along with energy prices. Hagerstown, Maryland, opened a $61 million runway recently to no traffic—its service shut off completely two months before it was complete. The closest airport with airline service is in Baltimore, an hour and a half away.
It will take much higher air fares—or much higher subsidies—to link these cities back into the economy by air.
AIG raises money, Greenberg faces civil charges
Insurance giant AIG says it will raise $20 billion in new capital to shore up its finances, something that will dilute its existing shareholders’ stakes by 8 percent, Reuters quotes an analyst saying. The company has had huge losses recently on bad credit-derivative investments and the capital raising is 60 percent higher than AIG previously predicted, the FT says.
The Journal on C1 says that AIG’s ex-CEO Hank Greenberg faces civil charges from the Securities and Exchange Commission for his role in the accounting scandal there a couple of years back.
Criminal prosecutors accused four former executives of General Re, a unit of Berkshire Hathaway Inc., and one former AIG executive of inflating AIG’s reserves by $500 million in 2000 and 2001 through fraudulent reinsurance deals by making it look like the company had a bigger cushion against losses, which boosted its stock price. The five defendants were convicted earlier this year in a federal-court trial in Hartford, Conn.
Mr. Greenberg stepped down from AIG in 2005 as the company came under investigation for its accounting practices. In 2006 AIG agreed to pay $1.6 billion to settle allegations of accounting improprieties and other matters with authorities.
Oil and gas states booming
Soaring energy prices have sparked a boom in states that produce oil and natural gas, the WSJ reports on A3.
In states like Texas, Oklahoma, Wyoming, North Dakota, and Montana, personal income is growing faster than the national average, unemployment is far lower, and state treasuries are flush with cash while their peers are struggling with revenue declines. The WSJ reports that consumers in these states are, of course, being buffeted by high gas prices, too, but it doesn’t hurt as bad when unemployment is 2.6 percent and net migration is up five times from a year ago, as it is in Wyoming.
Military thinking green
The Journal on page one reports on the armed forces’ increasing interest in alternative energy sources. It says the military is “increasingly concerned that its dependence on oil represents a strategic threat.”
The paper says the military is aiming for hybrid armed vehicles, thinking about mini-nuclear-power plants and synthetic fuels, and is already using solar power.
Bank that sounded housing alarm goes bust
The Times on C1 writes about Franklin Bank, a small thrift whose chairman spent the last several years warning of the impending housing bust, is being taken under by the housing bust—along with some “accounting errors” in how it values its mortgage portfolio. Its CEO resigned and the SEC is on the trail.
Franklin’s woes are the latest sign of trouble for small banks.
Real estate and construction loan losses have started ballooning. Federal banking regulators are bracing for several dozen bank failures after only a handful during the last few years. And as consumer loan losses rise, balance sheets are being squeezed.
Something’s rotten in public pension funds
On the same page, the Times looks at another accounting scandal, this one in public pension funds, which it says “are promising benefits to public workers on the basis of numbers that make little economic sense.”
The numbers are off-base for a variety of reasons. Sometimes there is a glaring conflict of interest, as there was in Albany, where the consultant was being paid by the workers seeking richer benefits. More often, there is subtle pressure on the actuary to come up with projections that make the pension fund look good.
Most of all, public pension actuaries use old methods that have fallen far out of sync with the economic mainstream. That does not necessarily mean their figures are wrong, but it does make them vulnerable to distortion, misunderstanding and abuse.
In economic news, stocks fell nearly 200 points after the producer-price index renewed fears about inflation and oil hit yet another record. Producer prices are often passed on to consumers later.
Ends today: If you'd like to help CJR and win a chance at one of
10 free print subscriptions, take a brief survey for us here.