Newspapers: Why Bail Out Another Failed Industry?

Newspaper Bailout: Propping Up Another Failed Industry
With the current movement towards making a government intervention to prop up the newspaper industry, there are two major issues that come to mind:
-If newspapers are reliant on the government for funding, how objective can they be?
-The "free market" has decided that newspapers are a dud, and people have voted with their mouse clicks for other content. Trying to maintain something just to maintain it is poor policy, but the usual first instinct for our government.

I will forgo the independence and objectivity discussion. That one is clear and cannot be denied by any rational thinker. Instead I would like to focus on the "why" of supporting the newspaper industry.

Ilargi of The Automatic Earth offers his usual insight that is a must read. Small excerpt:

President Obama thinks he can help: he considers bailing out newspapers, ostensibly to promote journalistic notions such as truth-finding:

"I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding,"

But that of course is the horse a mile and a half behind the cart. And in left field to boot. The reason the blogosphere has gained so much attention is that "serious fact-checking" is a long forgotten part of American journalism. And -financial- government involvement in the news industry, whatever else it may indeed accomplish, is not exactly the most obvious way to get a reporter to go digging in that same government's dirt. What Obama complains about in the blogosphere, that it's all about opinions, doesn't describe that sphere, it describes the news industry that is no longer able to deliver any shrapnel of news without having first run it through the opinion wringer of its editors and ownership.

I could not agree more.

In a related note, I wrote about the time in history that the metal aluminum became easy to make and how the aluminum industry could have lobbied for a perpetual bailout from that day on:
Where Was Aluminum's' Bailout?

By now we are tired of hearing that home prices need to be supported, stock prices need to rebound, and that baseball cards are actually very undervalued. The mania to get asset prices up is running full throttle. Historically this was not always the case. Take the poor metal aluminum.

Clusterstock Hates Gold
The site Clusterstock is a daily multi stop for me. I enjoy the various topics they cover, and they inject a bit of fun into matters financial. That said, they seem to have two writers that are determined to write at least one article a day about how gold is "worthless".

From Tuesday, Gold Demand Is All Speculative, Joe Weisenthal argues that almost ALL interest in gold right now is driven by speculative bets:

Earlier we noted a worrisome sign for bulls: On-net, all speculation is on the long side. There are virtually no portfolio managers willing to go against gold.

While Joe leaves out the enormous concentrated short positions in both gold and silver by the big banks, he is harping on another theme he and Vincent Fernando like to champion "Gold is only worth what someone will pay for it". I mean that is just ground breaking right?

While Economic Disconnect is 100% sure that frenzy buying of stocks like AIG, FNM, and C are all solid fundamental plays, the notion that gold is different from any other financial instrument in that it is only worth what a buyer will pay is silly. Mr. Fernando has stated that companies can always have value for their stocks based on cash flow or other metrics. Well Mr. Fernando, you show me 10 stocks on the S&P 500 that are trading at cash flow and I will be very surprised say the least.

Economic Disconnect is a big fan of the metals (I hold various positions in gold and silver) but of course any investment carries the risk of valuation "re-adjustment" up or down. To pretend that BAC stock is somehow different in risk than gold is not quite correct in my eyes.

Corrupted Data Sets
I have been reading Calculated Risk for over 4 years now. The quality of the site is unmatched and the insight offered is top notch. As of late I have noticed something of a change over there (maybe you have too?) where the author has been ignoring key aspects of government policy and looking only at data as if the data itself exists in a vacuum. Now I am not going to pick on CR here, I really cannot fault his logic in the post in question, but I can argue that the omission of serious factors colors the data.

So what am I talking about? From September 17th CR writes:
The Impact on Mortgage Rates of the Fed Buying MBS
There are some charts worth a look. His summary:

I think the impact on mortgage rates from the Treasury purchases is minor. This suggests to me that mortgage rates will rise by about 35 bps, relative to the Ten Year yield, when the Fed stops buying MBS.

How is that for a whopper? "

I spent 1.3 Trillion on MBS and all I got was a 35bps rate reduction" does not quite fit on a T-shirt.

To be fair here, CR notes that the relative spread of mortgage rates to the Ten year yield will be only a 35bps difference, so in that he is surely correct.

But where is the notation about the government owning fully 80% (or more) of the mortgage market? With a taxpayer backstop rates are low, but what would rates be if banks had to lend themselves for residential real estate? I think it would not matter what the 10 year was at if left up to them.

And this makes me think about financial reporting in this era of bailouts, giveaways, and backstops. One cannot simply say "car sales went way up in August, maybe the consumer is returning" because you need to qualify it with the Cash for Clunkers program. Maybe home sales are going up, but that includes the $8k giveaway as a tempter. Anything real estate related is tainted by record government intervention on rates, final backstop of mortgages, and banking support to mask real losses. Even inventory is an unknown, as shadow inventory looms large.

To close, I would just state that most data sets that have been in use are no longer useful on a comparison basis. There is simply too much at work to influence them to pretend they provide the same look as they once did.

Comments

[Michael Clark:]

Panic to preserve the status quo is a sign of fear of the future. We are no longer embracing the future, but we're now trying to 'stave off' the future. Newspapers CANNOT compete with the internet, simple as that. Let the newspaper business sink or swim. If newspapers are really needed, they will survive.

At some point we have to realize that Night-Cycles are periods of creative destruction that eliminate evolutionary products that won't make it to the next Day-Cycle. Some nation-states won't make it either. Some forms of technology won't make it. If we are creative, we will make NEW forms as they ae needed.

Sep 23 05:14 AM

[SmBlkBob:]

I have friends in the newspaper business and one thing is very clear. The downward spiral began with the shear numbers of internet sites where you could buy and sell almost anything.

Few realize the extent of classified advertising in papers but the newspapers themselves do.

The one thing that has always puzzled me is why newspapers waited so long to create Craig's List type sites for themselves?
They all knew what was coming and could even predict the future yet they continued with the same old "tired" business model.

I'm afraid now it's too late. The only "papers" that will survive are ones you can pick up for free on the street corner and are advertiser supported. In other words, an internet business model.

The bailouts of dying models has to stop.

Bob

Sep 23 05:37 AM

[jrainspe:]

There is nothing in this world that has any monetary value other than what someone is willing to pay for it, whether it's a loaf of bread, a piece of paper, or an ingot of gold.

The bread on the the other hand, does have some "intrinsic" value other than what it's monetary value indicates, i.e. its caloric and nutritional content that, under certain circumstance, might save your life. It's monetary value might change significantly, depending on the prospective buyer's situation. In the midst of plenty, the buyer might not be willing to pay anything for a mere loaf of bread; at the brink of starvation, a king's ransom might be offered up for it.

Therefore, it makes no more sens to make gold a monetary basis than it does some piece of paper. In the end, without the bread, you die.

Sep 23 06:11 AM

[CLH:]

The reason for the paper bail out is easy to see. Whenever someone or something is bailed out, control over that entity can be exercised.

Sep 23 06:57 AM

[Economic Di...:]

Great points all!
Michael,
sink or swim should be applied in many areas!
SmBlkBob,
I agree, the newspapers were very slow to understand the internets effect on news. I used to be a regular paper subscriber, but stopped about 6 years ago for online content.
jrainspe,
I do think bread is WAY more valuable than gold if you are starving, but you cannot make bread or water a basis for monetary value, there is simply to much of it. Golod has been money since time began.
CLH,
My point as well. Consider the FDIC borrowing funds fom banks and yet another conflict is introduced. What a mess.

Sep 23 07:10 AM

[holmesnmanny:]

"The "free market" has decided that newspapers are a dud, and people have voted with their mouse clicks for other content. Trying to maintain something just to maintain it is poor policy, but the usual first instinct for our government."

Hardly has that happened. Let's be real. I know the "cool" thing is to bash the newspaper industry because they finally sprung for a loss after a ridiculous amount of profitable quarters, but this is simply due to ad revenue being low, which is simply do to many companies being out of business and people not being in a position to fork over money. This isn't due to people thinking that newspapers are junk.

I know, I know, but it's so cool to just bash the newspapers, because that's the "cool" thing to do. Fine, then let the smart people buy their stock on the cheap and make an easy buck in the next couple quarters when the stock has picked back up.

Sep 23 08:25 AM

[holmesnmanny:]

FTR, I got in Mcclatchy when it was $1.10 and I won't be getting out 'til they get back to $10, which will be within a year. This will be the easiest money I've ever made trading. Period.

Sep 23 08:28 AM

[Jimbo:]

I don't claim to be knowledgeable about newspaper advertising. But I do observe and read papers for their news content. The electronic and print media are doing a serious, and fatal, disservice to themselves and the President by shielding him from what is actually happening on Main Street. The fawning and sycophantic media are asking silly questions about "enchanting" experiences he is having while too many citizens are terrified over his plans for control of radio, the inter net, a nightmare national debt, and looming foreign policy moves that harken to the days of Jimmy Carter. The "see no evil, hear no evil, speak no evil" is going to kill the media for at least a generation, if not longer.

Sep 23 09:55 AM

[notsosmart:]

dead papers printing.among the young,even those that can read,have no interest in newspapers.they are the buggywhip of yesteryear.

Sep 23 10:35 AM

[mmouth:]

I find it incredible that unbiased reporting is something that you assume is taking place. Your perspective is extremely biased and you obviously have an agenda also. If I want news that is as close to unprejudiced as possible the only way to achieve this is by paying someone to gather it. If you rely on free reporting you get what you pay for.

Sep 23 10:45 AM

[Leftfield:]

The MSM has been killing themselves for far longer than just a few quarters of lousy revenues. They have constantly been on full left tilt since the 60's, in their "news" reports. Now there are alternatives.
They were making money while the debacle that is wracking our country was building. Possibly the most amazing fact of all is the dog that didn't bark during that time, the MSM. Then or now.
They've gotten the bloated government they asked for and the president they are most enchanted with. But, they are showing the results of it: A private economy on life-support and control by a few oligarchs. Their hope now seems to be, to join the breadline of privileged failures, for bailouts.

Sep 23 11:19 AM

[yank:]

Leftfield:
Wholeheartedly agree with you. I guess the only other thing to point out to those "enchanted" with newsprint is to take notice that right now the NY Times has exactly ONE offer on the table for its "distressed" Newspaper, the Boston Globe. That offer is a "Take it or Leave it" offer of $35 million. In 1993 the NY Times paid $1.1 BILLION for the Boston Globe. Aren't you glad the NY Times isn't managing your portfolio? The Times is "toast" and will not survive in its present form until the next Presidentail election in 2012. Too bad.

Yank


On Sep 23 11:19 AM Leftfield wrote:

> The MSM has been killing themselves for far longer than just a few
> quarters of lousy revenues. They have constantly been on full left
> tilt since the 60's, in their "news" reports. Now there are alternatives.
>
> They were making money while the debacle that is wracking our country
> was building. Possibly the most amazing fact of all is the dog that
> didn't bark during that time, the MSM. Then or now.
> They've gotten the bloated government they asked for and the president
> they are most enchanted with. But, they are showing the results of
> it: A private economy on life-support and control by a few oligarchs.
> Their hope now seems to be, to join the breadline of privileged failures,
> for bailouts.

Sep 23 11:54 AM

[sildenafil:]

The fawning and sycophantic media are asking silly questions about "enchanting" experiences he is having while too many citizens are terrified over his plans for control of radio, the inter net

Oct 28 05:22 AM