Author Archives: Joe Weber

About Joe Weber

Now the Jerry and Karla Huse Professor Emeritus at the University of Nebraska's College of Journalism and Mass Communications, I worked 35 years in magazines and newspapers. I spent most of that time, 22 years, at BUSINESS WEEK Magazine, leaving in August 2009 as chief of correspondents. So far, I have worked in central New Jersey, New York City, Denver, Dallas, Philadelphia, Toronto, Chicago, Beijing, Shanghai and Lincoln, Nebraska. The adventure continues.

Pistol-packing teachers: now that’s an idea

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When a Nebraska state legislator introduced a bill the other day that would open the way for teachers and administrators in schools in the state, including universities, to carry concealed guns, I’m not sure he fully appreciated how visionary the measure really was. It is, without doubt, one of the most far-sighted, politically astute and economically savvy pieces of legislation ever to be floated in Lincoln, Neb.

This bill, sure to be resisted by those blinkered pantywaists in Omaha and the university community in Lincoln, could transform the state’s economy and put Nebraska on the global map. It ought to be cheered from the Iowa border to Colorado. Let’s examine the implications.

First, school districts and the university are straining under budget pressures these days. If teachers and administrators could tuck Glocks under their vests, legions of security guards could be let go. Indeed, the campus police force at UNL and every other university campus in the state could be disbanded. When every academic is packing, criminals are sure to stay out of the classrooms, dormitories and poorly lit passageways traversed by coeds late at night. Think of the massive and instantaneous budget impact. Billion-dollar state budget shortfall? Gone in a flash of gunpowder!

Consider, too, the intellectual and financial benefits. If freshly armed professors chose to settle their disputes like men, instead of in those insufferably genteel discussions at faculty meetings, we’d have a lot fewer faculty members after a while. Odds are, too, that the survivors would be the brainier right-thinking types. Many of the rest are probably tenured, so this move would deal with that problem nicely, too. We’d save a bundle on inflated salaries and wind up with quick-thinking profs who have their heads on screwed on properly.

Sure, there could be some minor problems. Teachers drawing down on one another outside crowded classrooms or in faculty dining areas might be a bit disruptive, at times messy. But students adapt to just about anything and we do have janitors for a reason. Let’s not let such small issues hobble us.

Politically, moreover, this is a brilliant move. A bill like this forces legislators to put their convictions out on display for everyone to see. Not sure if your legislator is a Second Amendment champion? This’ll out him. And this way, we could rid ourselves of the overeducated urbanites who hide behind those wrong-headed complaints about gun violence and crime. You know, many of them are following secret agendas inspired by Moscow and Beijing to disarm Americans anyway. This bill will eventually force them out as voters see their true colors.

The measure is also an economic stroke of genius. When Nebraska becomes a place where real Americans can stride around with holsters heavy and hearts full, more Americans will want to visit. Eventually, many will move here. Our kind of people will desert those decadent and dangerous cities on the coasts and flock to the rolling prairie, where they can fire at will at anything that disturbs them. Our population will swell, first with tourists and then with permanent newcomers.

Don’t underestimate those tourists, either. This is Nebraska, after all – a place where six-shooters on both hips were once commonplace. With no trouble at all, we could recreate the glory days of the Nebraska Territory. People would wander the streets even in places like Lincoln looking for low-down varmints to eradicate. Our bars could reinstall those nifty swinging panels on their front doors. Men could play poker, curse, drink and spit a lot while busty women saunter around in fluffy skirts. Think of the possibilities of evoking a time when real freedom existed in the state and our country, when we didn’t rely on slick lawyers and worry about Miranda Rights and such.

What, you say, this is supposed to be the 21st Century? Gunfights have gone the way of player pianos.  Now, we have laws and police and courts and such. Poppycock. It’s weaponry we all need. The bad guys are packing, after all, and the only way for decent folk to counter that is to carry even bigger guns. Let’s hope our legislators don’t stop at concealed handguns, but let us have assault weapons in our elementary, high schools and colleges. With any luck, someone clever on campus could develop a concealable bazooka – why are we paying those academics anyway, if not to come up with nifty new things? Indeed, Nebraska could become a Silicon Valley for weapons-makers.

But, really, what we should hope for is the ability to drive tanks to campus. Legalize armored personnel carriers and you’ll really scare off the bad element. They would also guarantee all of us right-thinking folks good parking spaces.

This bill, put forward in the wake of a tragic high school shooting by a mentally troubled student, is certainly evidence that some legislative leaders in the state have been bred and reared right – isn’t it? Then again, it could be a sign of maybe a little too much inbreeding in somebody’s family.

Making business journalism sexy (almost)

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Looking for ways to make business journalism come alive for students? How about creating scavenger hunts for juicy tidbits in corporate government filings? What about mock press conferences that play PR and journalism students against one another? Then there are some sure bets – awarding $50 gift cards to local bars for mock stock-portfolio performances and showing students how to find the homes and salaries of university officials and other professors – including yourself — on the Net.

These were among the ideas savvy veteran instructors offered at the Business Journalism Professors Seminar last week at Arizona State University. The program, offered by the Donald W. Reynolds National Center for Business Journalism, brought together as fellows 15 profs from such universities as Columbia, Kansas State, Duquesne and Troy, as well as a couple schools in Beijing, the Central University of Finance & Economics and the University of International Business and Economics. I was privileged to be among those talented folks for the week.

We bandied about ideas for getting 20-year-olds (as well as fellow faculty and deans) excited about business journalism in the first place. The main answer was, of course, jobs. If they’d like good careers in journalism that pay well, offer lots of room to grow and that can be as challenging at age 45 as at 20, there really are few spots in the field to match. These days, with so much contraction in the field, business and economic coverage is one of the few bright spots, with opportunity rich at places such as Reuters, Bloomberg News, Dow Jones and the many Net places popping up.

The key, of course, is to persuade kids crazy for sports and entertainment that biz-econ coverage can be fun. The challenge is that many of them likely have never picked up the Wall Street Journal or done more than pass over the local rag’s biz page. The best counsel, offered by folks such as UNC Prof. Chris Roush, Ohio University’s Mark W. Tatge, Washington & Lee’s Pamela K. Luecke and Reynolds Center president Andrew Leckey, was to make the classes engaging, involve students through smart classroom techniques and thus build a following. Some folks, such as the University of Kansas’ James K. Gentry, even suggest sneaking economics and (shudder) math in by building in novel exercises with balance sheets and income statements.

Once you have the kids, these folks offered some cool ideas for keeping their interest:

— discuss stories on people the students can relate to, such as the recent Time cover on Mark Zuckerberg or the May 2003 piece in Fortune on Sheryl Crow and Steve Jobs, and make sure to flash them on the screen (at the risk of offending the more conservative kids, I might add the seminude photo BW ran of Richard Branson in 1998)

— scavenger hunts. Find nuggets of intriguing stuff in 10Ks or quarterly filings by local companies or familiar outfits such as Apple, Google, Coca-Cola, Buffalo Wild Wings, Hot Topic, The Buckle, Kellogg, etc., and craft a quiz of 20 or so questions to which the students must find the answers

— run contests in class to see who can guess a forthcoming unemployment rate, corporate quarterly EPS figure or inflation rate

— compare a local CEO’s pay with that of university professors, presidents or coaches, using proxy statements and Guidestar filings to find figures

— conduct field trips to local brokerage firm offices, businesses or, if possible, Fed facilities

— have student invest in mock stock portfolios and present a valuable prize at the end, such as a gift certificate or a subscription to The Economist (a bar gift card might be a bit more exciting to undergrads, I’d wager)

— follow economists’ blogs, such as Marginal Revolution and Economists Do It With Models, and get discussions going about opposing viewpoints

— turn students onto sites such as businessjournalism.org, Talking Biz News, and the College Business Journalism Consortium

— have students interview regular working people about their lives on the job

— discuss ethical problems that concern business reporters, using transgressors such as R. Foster Winans as examples. Other topics for ethical discussions might include questions about taking a thank-you bouquet of flowers from a CEO or traveling on company-paid trips, as well dating sources or questions about who pays for lunch

— discuss business journalism celebs, such as Lou Dobbs and Dan Dorfman

— discuss scandals such as the Chiquita International scandal (Cincinnati Enquirer paid $10 m and fired a reporter after he used stolen voicemails)

— use films such as “The Insider,” “Wall Street,” and “Social Network” to discuss business issues

— use short clips from various films to foster discussions of how businesses operate. Good example: “The Corporation”

— team up with PR instructors to stage a mock news conference competition pitting company execs in a crisis against journalism students. Great opportunity for both sides to strut their stuff.

We also heard helpful suggestions from employers, particularly Jodi Schneider of Bloomberg News and Ilana Lowery of the Phoenix Business Journal, along with handy ideas from Leckey and Reynolds executive director Linda Austin, a former business editor at the Philadelphia Inquirer. My biggest takeaway: run some mock job interviews with students and teach them to send handwritten thank-you notes.

And we were treated to some smart presentations by journalists Diana B. Henriques of the New York Times about the art of investigative work (look for her new Madoff book), the University of Nevada’s Alan Deutschman about the peculiar psychologies of CEOs (narcissists and psychopaths are not uncommon), the University of Missouri’s Randall Smith’s view of the future for business journalists (it’s raining everywhere but less on business areas). We got some fresh takes on computer-aided reporting, too, by Steve Doig of the ASU Walter Cronkite School of Journalism and Mass Communication as well as on social media by the Reynolds Center’s Robin J. Phillips.

For anyone interested in journalism, especially biz journalism, it was a great week. As I take the lessons from ASU to heart, my students will be better off. My thanks to the folks there.

Love Me Tender — Elvis’ Time in the Sun

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Elvis Presley’s road toward iconhood began at age 18 and ended at 42. Hard to believe that in just 24 years – the blink of an eye, or curl of a lip – this poor southern boy with a guitar changed cultural history and then vanished. It’s also a troubling reminder of how little time we all have to make our marks, however big or small.

This pop-culture reminder of mortality struck home for me as several of us visited Graceland last week after running in the Memphis marathon and half-marathon. For devotees, of course, the place is a shrine and the spot where the King is buried along with his parents and grandmother. Visitors drop little stuffed animals on the graves and scrawl messages on the low stone wall lining the front of the property.

Even though I’m less a Presley fan and more a Dylan, Lennon, Springsteen sort of guy, the visit offered some unsettling truths.

First, some background: Graceland, a doctor’s house not far from downtown Memphis that Presley bought at age 22, is surprisingly modest. Aside from the white-fenced grounds out back where he had horses and a big carport for his car collection, the main house is not much larger than an upper-middle-class home in just about any comfortable suburb. When we were house-hunting, Donna and I checked out houses in Lincoln, Neb., that were more impressive.

But for Presley and his wife and lone daughter, as well as his parents, it was home. Even as he roamed around North America making his name – in Hollywood, Vegas, etc. – he would return to the stone Colonial to hang out with his family and boyhood chums. He even recorded in the Jungle Room, a place done up like a lodge you’d see on safari. Graceland was, one would guess, a palace to a kid who began life in a shotgun shack. He even carpeted ceilings in some rooms, a foretaste of the kitsch that sadly dominates Elvis’s legacy.

For all the crassness around his memory, he was a Colossus in pop culture. Today, a couple outbuildings near the house are packed with gold, silver and platinum record plaques commemorating an astonishing list of hits. A room in one two-story building is lined floor-to-ceiling with them. Elvis was remarkably prolific and hardworking, something belied by his easygoing stage persona or the goofy movie characters he played. He starred in 31 movies – hard to believe, especially since all are forgettable – and he was, we heard, quite insecure about returning to live performances after nearly a decade of Tinseltown.

One of the taped interviews that visitors listen to as they roam around Graceland is revealing, even profound. When he decided to make a record, Presley says, he would pick songs that he believed people would want to hear – not what he wanted to sing, necessarily, but rather what he figured the public would like.

That may seem obvious for someone who wants to sell records or anything really. Anyone with customers knows you need to please them to sell more stuff, right? On the other hand, for artists or other creative people, serving an audience is usually the furthest thing from their minds. They want to give voice to their inner thoughts, to express themselves, perhaps to purge their demons. They want to share their brilliance or their pain. But they aren’t about meeting customer tastes.

Presley was different. His genius was in entertaining. Especially in his grotesque Vegas phase, he was trying to please and pack the house. He didn’t write his material. But he did sing it, of course, with power and panache. He was fun to listen to, and in business terms he knew his market and served it well.

But he also, in his early days, broke the mold. He created the market. He brought a unique style, a personality and an approach that departed from what had gone before. He made Sinatra and such look impossibly passé. He was one of a kind who hit at just the right time for a postwar generation looking to define itself as different and new. With some overstatement, Abbie Hoffman argued that Elvis marked the beginning of a revolution in America. Certainly, his loose hips, sultry voice and swagger – tempered by a nice-guy demeanor – worked for the 1950s set and for many beyond that. He paved the way for my later musical heroes.

That sort of originality is what it takes for anyone to make a deep mark – whether in novels, music, nonfiction, journalism or teaching. Few get to stride the world stage like Elvis, though every kid who plays at being a rock star is knowingly or unknowingly imitating the King. Few have millions paying attention to their writings or their artwork. But even those who reach even modest levels of fame – superstars or just people known for being good researchers, lawyers, doctors, etc. – must bring something fresh to the party. That was lesson number one for me from Graceland.

More troubling for me at age 56 is lesson number two: the preciousness of time. They’re not making more of it, and none of us has enough. For my money, Elvis made his rep for a few years in the ‘50s and fed off that for the rest of his surprisingly short career. A blazing comet when he was young, he was long gone culturally by the time he actually died, at Graceland, in 1977. Similarly, the Beatles did their pathbreaking work for really just a few years in the 1960s. Going to a Dylan concert this past summer was a bit like visiting a museum, and an odd one at that.

The time in the sun is distressingly short for us all, and if you don’t figure out early on how you’ll shine, you may never do so. Remember Tom Lehrer’s wonderful and sad line: “It is a sobering thought, for example, that when Mozart was my age he had been dead for two years.”

There will never be another Elvis. All the kitschy crap – bobblehead dolls and Mr. Potato Head Elvises – that is peddled pathetically across the street from his former home will become a memory. Maybe it’ll take a decade, maybe longer, but a time will come when no one goes to Graceland anymore. The marketers still raking in a bundle on him will find other things to sell.

For now, though, Mr. Presley remains a handy case study in freshness, good timing and the chance we all have to make our mark while we may. This year would have marked Elvis’ 75th birthday. It’s grand that we have the 20-something version to remember.

There, there, dear: do tears belong in the classroom?

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In “A League of Their Own,” that wonderful 1992 film, a young woman player makes a dunderheaded toss and breaks into tears as coach Jimmy Dugan (Tom Hanks) yells at her. “Are you crying?,” he asks, stunned. “There’s no crying! There’s no crying in baseball!”

Boy, can I feel for Dugan. So far, I’ve had to deal with four incidents of tears in school. One time, I believe, the bad toss was mine. In the other cases, well, I’d point to hormones, undergrads facing job-like pressure for the first time or sheltered young women beginning to discover the world isn’t such a kindly place.

Still, I felt as flummoxed as Dugan did. Making girls cry is something only a true jerk would ever feel good about. This is so, even though a wiser colleague at Nebraska, veteran teacher and hard-boiled journalist Kathy Christensen, tells me tears come automatically with breasts. She shrugs them off.

Just under three semesters into my academic career, I don’t find the waterworks easy to dismiss. But, dear reader, you be the judge. Let me know if I blew it or could have handled these situations better:

Case No. 1 – I encourage an outstanding magazine-writing student to pursue an internship with Bloomberg Businessweek, my old employer. Before Bloomberg bought it, the mag had a tradition of taking on bright young interns, most of whom had no business training but who had lots of smarts. A colleague at the mag looks over her materials and says she’d be a wonderful recruit and he could use her skills in projects on business schools; he recommends her, as do I.

But, in myriad ways big and small, BW has changed. Bloomberg has her take a three-hour online test, parts of which are heavy on business knowledge (of which she has none, as everyone involved knows). She fails badly and folks there tell her she’s not a candidate. She comes into my office, crushed and weeping.

So I feel like a heel. I put her into a bad spot, after all, and she suffers for it. It also doesn’t help my credibility with the new BW regime.

Was I wrong? If students are willing to take a test and do badly, is it my fault? I warned her there would be business material on the test, even reviewed some general things with her. But I didn’t realize how much the game had changed. Seems to me I blew it. Did I?

Case No. 2 – As is my normal practice, I flash a student’s paper on the screen from a classroom projector. As a class, we criticize the work. I point out the positives and negatives of the piece, and suggest ways it could be improved. It’s pretty benign and no different from other critiques. We’ve had many such critiques that day. The class doesn’t say much one way or the other about it.

The student waits a bit after the lights come up, but then mutters to me, “you gave me a terrible grade on the paper, then humiliated me in front of everyone. I’m done. That’s it.” And she storms out, furious and in tears.

Her grade, a C+, was not on the screen, though her name was (regular practice in these editing and review sessions). Also, while rushing out, she informs me she will drop another class with me that she had signed up for the following semester and, later, she tops it all of by giving me a scathing evaluation at the end of the course.

Is it wrong to criticize students’ work publicly? The class involved peer-editing, so students criticized one another’s work in every assignment. And, in journalism don’t we face critics every time a reader opens a paper and curses about something he or she reads? In the end, I don’t fault myself for this one, but the drama did throw me.

Case No. 3 – A student has promised a colleague that she would deliver a finished video about a trip the colleague and I took with eight students to Kazakhstan in May. The students are no longer in our classes; some have even graduated, so we have no real sway over them.

The due-date comes and she hasn’t got the goods, but has several legit-sounding reasons. The colleague and I bemoan the fact that several students are behind – a hassle he has had in prior classes – and he gets a bit hot about the general problem. It’s a big thorn in the side for him.

The student, a smart and delightful videographer, breaks into tears. She then begins to apologize, explaining that it’s the time of the month for her (she really said that), she’s got problems with moving to a new city and she’s been working and traveling nonstop for weeks. My heart, frankly, goes out to her. I say, it’s not you that’s the problem here; it’s the general issue of how we can get students to comply with deadlines. I’m sure you will get your work done (which eventually she does, at least most of her work).

When I complain to my colleague later that we shouldn’t be making girls cry, he says, “They make themselves cry.” It’s not his problem, but theirs, he suggests.

So, was she being manipulative? Were we right to rant? Is a deadline a deadline?

Case No. 4 – A top student interviews with an internship recruiter. She says a couple silly things – including asking whether she needs to tell her soccer league that she can’t referee for a week during the internship – and strikes a tone the recruiter says is arrogant. In fact, he tells me afterward that he’s written “humility?” several times on his notes about her.

She comes by and I tell her I’m going to give her some no-holds-barred criticism about her interview. It won’t help her, I say, if I mince words, so I don’t. I tell her precisely what the interviewer had told me, and advise that appearing arrogant cannot help in such settings. You’ve got to seem humble, even it’s just for appearances. She breaks into tears, denies arrogance and says she was not asking for a week off for soccer. He misunderstood, she says, pleadingly.

This is one where tough-love was warranted, I believe. Still, the waterworks were troublesome. My own self-criticism: do mock interviews with students first from now on, giving them pointers that can spare them from making such mistakes. (By the way, she got the internship).

So dear reader, what say you? Are tears something teachers should slough off? Is it better that our kids shed them before they get into the workplace, where the consequences of mistakes can be far uglier? And how would you advise someone, still mystified by the half-adult psyches of undergrads, to deal with them? I’m thinking maybe I’ll just tell the kids that there is still no crying in baseball.

Luddites revisited — attacking high-frequency traders, speculators and assorted other market “vipers”

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Andrew Jackson, the country’s seventh president, was famous for railing against the financiers of the early 1800s. They speculated on “the breadstuffs of the country,” he warned. “Should I let you go on, you will ruin 50,000 families and that will be my sin! You are a den of vipers and thieves. I intend to rout you out and by the eternal God, I will rout you out.”

The quote, a favorite of bloggers who fret about plots to establish a new world order and such, would be at home today in the superheated arguments over high-frequency trading. The latest diatribe, I’m sad to say, comes from a dear friend and former colleague at Bloomberg Businessweek. Peter Coy writes, “The bigger the financial sector, the more dangerous it becomes.” He bemoans the flood of smart people going into the business, noting that a quarter of Harvard’s brainiacs in the early 2000s were drawn into investment banking and like fields. And he complains about banks “cranking up their trading operations in a way that imperils the financial system once again.”

His indictment, based on the May 6 flash crash, is headlined “What’s the Rush?” And his subhed warns “The American financial system is erratic and voracious, and keeps score in milliseconds. Here’s how to rein in the beast.” Among his prescriptions: a transactions tax of a few cents per $100 to “throw sand into the gears of high-frequency trading,” higher margin and collateral requirements, and steps such as new taxes to reduce corporate debt (on the idea that we’re being assailed by waves of “debt-fueled speculation.”)

Oh, come now, Peter. Let’s dial it down a bit. First, while the Great Recession was in part the fault of Wall Street, it was not a high-frequency phenomenon. Rather, we can blame bad securitization practices, flawed housing policies in Washington, poor market oversight and a raft of other well-documented problems. Superfast trading may have helped stocks crater, but it was not the force that drove them down.

Yes, one must admit that May 6 was not a good day for the high-frequency set. No matter how short-lived, the $800 billion plunge in the value of U.S. stocks that day was worrisome. Stocks such as Accenture slipped to a penny from $40 (before bouncing back) in trading patches as short as eight seconds. Clearly, something was amiss in the superfast computers at the likes of Getco.

But let’s keep a few things in perspective. First, after going haywire the market did correct itself. Prices came back, in most cases rapidly. The Dow lost 1,138.69 points from its high in crazed intraday trading on May 6, but closed just 341.9 points down, and regained all that and then some by May 10. Erratic? No doubt. Voracious. Okay, but when have traders been anything but?

Let’s concede that there’s something bizarre about high-frequency trading. Its relationship to real value in stocks is remote at best. So, too, is its connection to fundamentals such as corporate strategy, earnings power, savvy management. All that good stuff that financial journalists, MBAs and CEOs – and maybe even the odd stockbroker — prize is a few solar systems away from the zippy stock-swapping at Hard Eight Futures, Quantlab Financial and such. Those guys, snapping to the beat of their own algorithms, don’t give a hoot about such things. It’s all numbers, bro.

Let’s concede, too, that the liquidity the HFT pack supposedly brings is an illusion. It is most likely gone when most needed. The simile Peter uses – “like a swimming pool that dries up just as you jump off the high dive” – is apt (hat’s off to his wordsmithing). It’s hard to see just what value the high-freqs bring to anyone but themselves.

But, so what? Speculators, those oft-reviled folks who put the zing in stock markets, have always been in the game for the gamble. They see Wall Street as a massive roulette wheel and believe that any way they can tilt the spin to their favor – legally – is fair play. In an odd way, they are cousins to technical analysts who have long played markets free of the burden of fundamentals. Are we to ban the technical folk because their charts are more like astrology than investment? They, too, are an odd subculture of market players whose powers over stock movements one could decry.

Surely, there needs to be policing to make sure high-freqs don’t misuse the power they have to move markets. They do swap millions of shares in ridiculously short periods of times, all but blind to fundamental values. At times, they account for disturbingly high amounts of volume. If they intentionally – or through glitches – knock stocks down to absurd levels to profiteer in some market-cornering way, they need to be rapped hard for that. Fines, perhaps, or suspensions of trading privileges could be used to rein them in.

But imposing transactions taxes or worse seems like overkill. Such steps would penalize all players for the perfidy of a few. Let’s use the scalpel instead of the meat-axe and target the bad boys, not just the folks looking for an edge of a few milliseconds on the next guy.

By the way, it’s passably ironic that Peter’s employer, Bloomberg, as well as Dow Jones and other data-providers are tripping over themselves to serve up market data ever more quickly to the high-freq bunch. Some go so far as to rent space to traders — at premium prices — so they can house their computers cheek-by-jowl with providers’ machines and save milliseconds of transmission time. What these providers know, just as traders do, is that timely information is still everything in this game.

Every technological advance that changes the playing field makes folks nervous. Luddism is a natural reaction. Moreover, the markets have long been the playground of innovators and, as a consequence, the targets of critics. In 1887 the head of the Chicago Board of Trade forcibly removed telegraph gear from the floor of the CBOT because he couldn’t abide the electronic links to notorious Chicago bucket shops, as recounted by Rutgers historian David Hochfelder. One NYSE broker in 1889 complained that the “indiscriminate distribution of stock quotations to every liquor-saloon and other places has done much to interfere with business.”

We may not like the high-speed folks. We may deride them as little more than turbocharged gamblers, as Rain Man-like idiot savants unfairly using their powers to enrich themselves while adding nothing to the game. But they will be players so long as there’s money to be made. We can take the profit out if they don’t play by the rules (and, by the way, maybe some of those smart Harvard types in finance can cook up better rules to keep market ripples from becoming tsunamis). Let’s not, however, make life onerous for everyone in the process.

Labor Day: Celebrate Wall Street!

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Desperate for daylight at the end of a seemingly endless tunnel, investors took heart from the latest jobs report. The Dow climbed nearly 128 points on the Sept. 3 news that hiring seems to be getting back in style, at least in parts of the economy. But banks, hedge funds and other financial players on and off Wall Street seem not to have gotten the word. They’re still stumbling in the dark when it comes to adding staff.

Even while scattered reports of modest additions pop up in the daily press, there’s little evidence that the sun will shine soon on the financial sector. Nationally, the number of people working in financial services barely budged in August, according to the Bureau of Labor Statistics. Counting both finance and insurance, the tally has skittered to some 5.64 million people, the lowest monthly count since February 1999 and a sorry shadow of the nearly 6.18 million who toiled in the sector in the go-go days of late 2006.

What’s the problem? Blame economic sluggishness, Washington demagoguery and, most of all, rampant uncertainty. Financiers, like lots of other folks, don’t know whether a much-trumpeted double-dip recession is in the offing. They still don’t know what exactly the folks in D.C. will loose on them in the way of financial reform. And, more immediately, they don’t know whether those customers they’ve been currying favor with for months will ever get off the dime.

Just look at the paralysis in the new-issues market. Over 170 companies have filed for initial public offerings this year, the most since 2007. But now fears abound that the lackluster markets could keep many of those IPOs in the wings. Worse, while aged titans such as GM garner the attention, experts quoted by USA Today warn that lots of innovative little guys seem to staying on the sidelines. It’s those up-and-comers that have driven past market rebounds and created the fee-generating business Wall Street counts on.

The FUD factor seems to be keeping plenty of would-be bankers out of pinstripes, at least for the time being. Fear, uncertainty and doubt have long been enshrined on Wall Street, of course, though folks did seem to forget that in the first half of the opening decade of the 2000s. The last half of the decade, of course, restored FUD in all its ugly glory, cutting short plenty of budding investment-banking careers.

Sadly, the bloodletting has not stopped. Look at New York alone. A modest number of private-sector jobs (29,000) helped keep the statewide unemployment rate at 8.2% in July, the latest period measured by the New York State Department of Labor. But the job count in financial activities is down 7,200 from July 2009.

Eventually, the numbers in lower Manhattan and nationally will turn around. Finance is too important to keep shrinking. Companies will need capital and they’ll have to look to Wall Street to rustle it up. Investors, too, will rediscover value in those beaten-down stocks. It may be, in fact, that the market just got ahead of itself and needed the bracing slap it got in recent months.

But that doesn’t mean the capital markets couldn’t use some help from Washington. Certainly, money won’t be on the table – plenty was already spent and demagogues have made it all but impossible for more stimulus money to go to Wall Street, at least directly. What’s more, tax relief for big-money investors seems hardly likely.

What Washington could do, however, is clarify the rules. Chip away at that uncertainty by making it clear what sorts of risk-taking will be tolerated and what won’t be. Make sure that big banks have the ability to take prudent risks – certainly not the foolhardy ones that pushed a few erstwhile titans over the cliff a few years ago, but smart and necessary gambles, nonetheless. If animal spirits are suppressed, no real recovery is possible. If bankers fear more Congressional perp walks, how can they back the next Apple or Microsoft?

And another thing Washington could do is put an end to Wall Street-bashing. The next round of elections, sadly, will likely spawn a fresh wave of attacks on fatcats, bankers and assorted financial miscreants. The targets are all too easy to hit and pillorying them plays well in the hard-pressed corners of America where finance is a four-letter word. Look for the rhetoric to ratchet up.

Today’s financiers, of course, can shake off the attacks – so long as there’s no legislation attached to them. But if the best and brightest of the post-recession generation listen to the Populist set and shun the vilified sector, who will fill those jobs eventually? If we are to keep yet another national industrial champion – Wall Street — from losing out to foreign rivals, our most talented hands will be needed. Our leaders ought to be making them feel good about it, not ashamed. And our bankers ought to be taking a few more chances and hiring them.

Economic Slowdown: Ideology at Work

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To the Obama-haters at the Wall Street Journal, the stubborn economic slowdown reflects business’ fear of looming tax hikes. The Administration-friendly folks at the New York Times, by contrast, blame the lackluster economy on political stalemate in Washington. Meantime, over at Bloomberg Businessweek, they tell us it’s all a matter of us having our cake and eating it, too — loving both the Bush-era low taxes and Obama-era high spending and failing to choose between the two.

The inability of our economy to surge back consistently from the Great Recession has become a Rorschach test for pundits. They look at the ugly blot and discern a pattern, one that – not surprisingly – reflects their biases. Love small government and Bush-era tax cuts? Obama’s overreaching is to blame for our woes. Never met a problem that more money from Washington couldn’t solve? It’s the shortfall in such largesse that is making that blot so skinny. And if they can’t make up their minds, they blame both Bush-era “wisdom and folly” – whatever that fence-straddling phrase means.

For my money, the reality is more a matter of the Depression-era notion of pushing on a string. Our policymakers can’t find the levers that will kickstart the economy, that will ignite the animal spirits of our business leaders, and that will drive down the pathologically high unemployment rate. Nothing seems to work, though the folks at the Fed aim to keep pushing whatever buttons they can. Their newest tack, revealed on Aug. 10: buying up more Treasury debt to keep interest rates low.

In the end, the problem may be that the hole we put ourselves into in the Great Recession is just depressingly deep. It took years to dig. And it could take years, sadly, for us to find our way out. To take just one measure, U.S. employment plunged by more than six percent in the recession that began in 2007, the steepest fall of any of the 11 recessions we’ve suffered through since World War II. To take another measure, these downturns lasted from six to 16 months, and our latest slide – believed to have ended in 2009, though the National Bureau of Economic Research has yet to date it – will almost certainly prove to be longer than any of them. (For policy wonks, the Minneapolis Fed puts all these comparisons into perspective here.)

If history proves anything, however, it’s that economies do claw their way back. Sometimes, they do so with the help of Washington. Sometimes, they move on despite government meddling, however well-intentioned. Even today, economists don’t agree on whether D.C. pulled us out of the Depression or prolonged it – making that bout of global misery our first and biggest political and economic Rorschach test.

It’s no comfort to people who have been out of work for months or even years at this point. It’s also small comfort to investors or people considering whether to deploy capital, especially since they are still sussing out Washington’s new regulatory reach. And, if this downturn proves at all similar to earlier ones, whole industries will emerge reshaped as a result of it (think Detroit), not to mention companies (think GM). We will come out of this as a far different economy with areas like Internet-related industries taking a dominant place over the manufacturing icons of the past. (How is it that people still have enough money for iPads?)

Following every twist and turn in this uneven recovery is enough to generate serious palpitations. For players in the capital markets – or anyone, for that matter — it’s healthier to set aside the dire headlines of the moment and keep your eyes on the horizon, however distant it seems. Bet on a long slow ride up, with lots of dips. Keynes famously said that in the long run, we are all dead. But at the moment, the promise of the long run is the only thing we have to hang onto.

Treason? WikiLeaks and the press

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Should some secrets stay secret? And is it treasonous for news operations to report on leaks of war documents when their countries are at war?

These questions arise, of course, because of the release of 92,000 documents about the Afghanistan war by WikiLeaks, in coordination with London’s Guardian, the New York Times and Der Spiegel. The ugly affair raises still further questions about what constitutes patriotism, how the Net makes high-quality journalism tougher to practice, and what governments will now do to try to bury their secrets even deeper.

First off, did the papers act properly? At first blush, it appears that at least two of the organizations — the Times and Der Spiegel — were maneuvered into this joint release. The instigator, it seems, was The Guardian, which had learned that WikiLeaks leader Julian Assange intended to release the papers unfiltered on his Swedish-based Web site. The editors at the Guardian suggested the joint release, apparently persuading Assange that he would make a bigger splash that way. This, at least, is the account given to PBS.

The papers then faced some tough choices: first, do they release the documents, along with their own independent reporting and analysis, and, second, do they share the information with the White House, giving the government a chance to react? On the first count, it seems that the papers really had no choice. After all, the documents would be out on the site no matter what the papers did, and, most likely, they would appear in print (since none of the three competing papers could trust the others to hold back). In short, WikiLeaks held the cards in this high-stakes poker game and it played the papers against one another.

Then the question was, what should the editors do with the information? The New York Times contacted the White House and got its reaction – its take that there was nothing really new in the documents. The White House also did not ask that the Times hold back on publishing the papers (probably realizing the move would be futile). Instead, it got a chance to put its spin on the news, likely hoping to quash the whole matter by offering the “nothing new” take. Certainly, the troops wouldn’t be surprised (see Ed Stein’s cartoon above).

Bill Keller, the executive editor of the Times, laid out the issue nicely in a sidenote to the stories. He noted that the paper had a month to report out the story and that it sought to eliminate any references that could endanger the lives of Allied forces or Afghan supporters. He also suggested that the WikiLeaks folks had the mainstream media over a barrel, arguing “To say that it is an independent organization is a monumental understatement. The decision to post this secret military archive on a Web site accessible to the public was WikiLeaks’, not ours. WikiLeaks was going to post the material even if The Times decided to ignore it.”

Since then, of course, split opinion has emerged on just how problematic the release has been. Former CIA Director Michael Hayden told the folks at Politico that “We’re going to get people killed because of this.” And Rep. Jane Harman, a California Democrat who chairs an intelligence subcommittee, said the documents give the Taliban a hunting list: “There are names of State Department officials, U.S. military officials, Afghans and the cities in which they live in the materials.” By posting them online, she said, “we’ve just served up a target list and an enemies list to the Taliban. … Real people die when sources and methods are revealed.”

For his part, WikiLeaks’ founder Assange said on MSNBC that about 15,000 reports were withheld because they could have revealed the identities of Afghans who have aided U.S. forces and exposed them to “the risk of retributive action” from warlords or the Taliban. For a better sense of who Assange is and what drives him, check out an interview he gave to the folks at TED, the conference organization on the West Coast.

Seems to me there’s no doubt that the leak of the papers in the first place was treasonous. If proved to be the source, Pfc. Bradley Manning will likely spend the rest of his life in jail. The Army intelligence analyst, also suspected of leaking a video a few months ago of a couple Reuters photographers being killed in Baghdad, will be lucky – in other times, he’d be shot. Now, one would guess, the Obama Administration won’t risk making Manning, an impossibly baby-faced twenty-something in his AP photo, into a martyr. Some of Manning’s friends, too, may be implicated, and one wonders whether they had a duty to inform on him before his alleged leaks.

As for WikiLeaks, the legal situation will be tricky but it seems the U.S. can do little against it. Even if Swedish authorities try to muzzle the site, some there, such as Sweden’s Pirate Party, are already offering help. Of course, Assange might never again be able to travel to the U.S. or perhaps to his Australian homeland, since he could be picked up for various violations. Australia is part of the coalition fighting in Afghanistan. Indeed, one has to wonder just where he can go in the West without being pursued.

Some folks are saluting the leaks, praising the media outlets for publicizing the documents, and ignoring or rebutting questions of treason. “I’m more concerned about the troop threat caused by our nation’s involvement in a war that lacks the backing of the Afghan people or fiscal accountability for the $330 billion we have pumped into the longest war in U.S. history,” argues a colleague at Nebraska, Assoc. Prof. Bernard McCoy. “What do we have to show for this? With corrupt Afghan political leaders and insurgents who, according to our own intelligence reports, are as strong as ever, our troops remain at great risk.”

And comparisons to the Pentagon Papers abound. That secret history of the Vietnam war, detailing a wealth of information not revealed to the public and quite embarrassing to the politicians of the day, was published first by the New York Times and then the Washington Post, both in mid-1971. The papers were an official Defense Department study of U.S. activities in Vietnam from 1945-67. A former colleague at BUSINESS WEEK, Mark Ivey, says of the current leak, “Viet Nam, relived.”

But the new documents, including raw intelligence memos, were nowhere as well-researched or vetted as the Pentagon Papers were. The Afghan War documents may be rife with errors and could prove useful in the end only to vengeful Taliban. Joshua Foust, a contributor to Current Intelligence, argues, “If I were a Taliban operative with access to a computer — and lots of them have access to computers — I’d start searching the WikiLeaks data for incident reports near my area of operation to see if I recognized anyone. And then I’d kill whomever I could identify. Those deaths would be directly attributable to WikiLeaks.”

For my part, it seems clear that the leaks could not be stopped once insiders in the military or elsewhere in the intelligence establishment made up their minds to release the papers. If it hadn’t been for WikiLeaks, someone else in the anything-goes Net universe would likely have found a way to help them surface. At that point, the news organizations acted well in doing what savvy reporters do – they put the documents into context and fleshed them out.

Yes, the newspapers were played by Assange. But they gave the public a far richer and more useful account than he would have by releasing the documents alone. In the case of the New York Times at least, the U.S. government also had a chance to frame the discussion and attempt to minimize the damage.

Will anything change now? It seems some Afghans will be in danger. Pakistan’s intelligence service is likely embarrassed and angry. And the U.S. intelligence agencies will now seek stronger means to keep secrets under lock and key. But, unlike the Pentagon Papers, revelations seem few and there’s little in the papers even to strengthen the case of the antiwar folks.

President Obama’s war in Afghanistan has been messy from the start. Too few forces to begin with. A publicly revealed deadline for drawdown. A military leadership that was anything but politic. Unless his plans for military victory start paying off soon – with real gains against the Taliban and Al Qaeda — the WikiLeaks affair will go down as another troubling turn — probably a small one — in a painful, prolonged and maybe doomed battle against Islamist terrorism. This ethical contretemps pales before that ugly reality.

McGraw-Hill: Time for a Deal?

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It’s only business. But that was a hard and personal lesson for many staffers at BUSINESS WEEK Magazine. It may yet become a tough lesson for the leaders of McGraw-Hill Cos.

When McGraw-Hill, my employer of 22 years, cut BW loose by selling it to Bloomberg last year, plenty of BW folks felt betrayed. They had committed their careers to the magazine and bought the argument of leaders there that the eighty-year commitment the McGraw family had to the weekly was a forever thing. So long as a McGraw was in charge, McGraw-Hill (MHP) would never sell it, the leaders counseled.

Well, they were wrong, of course. BW, viewed at McGraw-Hill as just another money-losing Internet victim, was quickly snapped up by the business wire. And soon, despite assurances from the Bloomberg camp that the deal was more about buying talent than a big brand name, most of the 200-plus BW vets were let go. It was a harsh dose of the business world’s version of realpolitik, the kind of thing BW folks had reported on but that few of them had experienced. With its formidable global reporting force, Bloomberg just didn’t need all that pricey BW talent.

Now, pundits are vaunting the idea that McGraw-Hill could – or should – be in someone’s sights. Pearson PLC, the $9 billion-a-year British publishing company, is one of the names floated as the perfect acquirer. Textbooks, synergies, global footprint, etc. Such takeover talk, which has long dogged $6 billion-a-year McGraw-Hill, seems as rational and predictable as Bloomberg’s interest in BW. The 101-year-old MHP has been struggling lately with single-digit declines in both net income (down 8.6% last year) and revenue (down 6.3%).

It is perhaps sad, but former BW folks are likely salivating at the prospect of MHP’s demise as an independent company. Turnabout is fair play, as the British say. Even more than that, however, many BW vets have stock options that have been underwater for a few years now [full disclosure: as former chief of correspondents for the magazine, I’m among them. I took a modest number of options with me when I left last year before Bloomberg appeared on the scene]. MHP’s shares traded as high as $72 in mid-2007. They now struggle around $30, after dipping below $24 last fall. In purely stock-market terms, the company seems like a flatliner whose glory days are long behind it.

McGraw-Hill’s challenges loom as high as BW’s once did (and still do). Uncertain prospects cloud the future for MHP’s once high-flying Standard & Poor’s ratings machine, given the vagaries of government regulation, general litigiousness and the tarring the ratings agencies have taken in the recent recession. The recently passed financial reform could cut its margins and expose it to more lawsuits, as S&P president Deven Sharma himself has recently warned (and S&P also warned about rival Moody’s in cutting the rating on the other rating agency giant, a peculiar irony). Prospects are also questionable for MHP’s storied textbook operation, given hard-pressed state education budgets and the march of the Net in the text realm. Flat stock prices? Who should be surprised?

The big question, of course, is whether Pearson or someone else would see as much value in McGraw-Hill as Bloomberg did in BW. The jury is out on whether Bloomberg’s move was a smart one – so far, its main value seem to be putting the Bloomberg name regularly in front of 4.5 million sets of eyeballs at a bargain price. Pearson could likely eliminate a lot of duplication by folding MHP’s textbook operation into its line. As for S&P, that odd beast could be of use to Pearson (which owns the Financial Times along with the world’s biggest textbook publishing operation) or, perhaps, to a Reuters or other financial information service. Certainly, rating agencies are needed and, even without the crazy-days growth of the past and the threat of a litigious future, S&P seems valuable. Slicing and dicing MHP among a few acquirers might make sense.

The atmosphere also seems right. Conditions are much different than 1979, when then-CEO Harold McGraw Jr. repelled a takeover bid by American Express. The popular CEO could rally his family and other loyalists and beat back the challenge. Given the recent anemic stock performance and dubious prospects at the company, current CEO Harold W. (Terry) McGraw III, son of the now-deceased Harold, might find fewer sentimental supporters nowadays. What’s more, the current CEO might do his family and friends a huge favor by putting his company into a global powerhouse that can do something with is still-valuable assets.

Business has precious little room for sentiment, of course. McGraw-Hill taught that lesson to former BW lifers in painful fashion. If a smart acquirer could do more with the bits and pieces of McGraw-Hill, so be it. Certainly, that would be a better fate than watching the company wither into irrelevance. And for stockholders, the premium should at least take the price close to its long-gone high. A deal might be the business world’s version of justice.

Double-dipping?

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Gentle reader,

Here is an excerpted take on the question of a double-dip recession, from the people at CalculatedRisk, a blog I dip into now and again. Echoes a post here a couple days ago, but with some more detail. Call us a pair of Pollyannas, but maybe we’re onto something.

Personally, I get nervous when conventional wisdom all moves in one direction — as the sliding markets lately seem to suggest. I’ll stick with the contrarians.

Tuesday, June 29, 2010
2nd Half: Slowdown or Double-Dip?

by CalculatedRisk on 6/29/2010 04:00:00 PM

No one has a crystal ball, but it appears the U.S. economy will slow in the 2nd half of 2010.

For the unemployed and marginally employed, and for many other Americans suffering with too much debt or stagnant real incomes, there is little difference between slower growth and a double-dip recession. What matters to them is jobs and income growth.

In both cases (slowdown or double-dip), the unemployment rate will probably increase and wages will be under pressure. It is just a matter of degrees.

The arguments for a slowdown and double-dip recession are basically the same: less stimulus spending, state and local government cutbacks, more household saving impacting consumption, another downturn in housing, and a slowdown and financial issues in Europe and a slowdown in China. It is only a question of magnitude of the impact.

My general view has been that the recovery would be sluggish and choppy and I think this slowdown is part of the expected “choppiness”. I still think the U.S. will avoid a technical “double-dip” recession.

Usually the deeper the recession, the more robust the recovery. That didn’t happen this time (no “V-shaped” recovery), and it is probably worth reviewing why this period is different than an ordinary recession-recovery cycle.

# First, this recession was preceded by the bursting of the credit bubble (especially housing) leading to a financial crisis. And there is research showing recoveries following financial crisis are typically more sluggish than following other recessions. See Carmen Reinhart and Kenneth Rogoff: “The Aftermath of Financial Crises”

An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output and employment. … Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt.

# Second, most recessions have followed interest rate increases from the Fed to fight inflation, and after the recession starts, the Fed lowers interest rates. There is research suggesting the Fed would have to push the Fed funds rate negative to achieve the same monetary stimulus as following previous recessions. See San Francisco Fed Letter by Glenn Rudebusch The Fed’s Exit Strategy for Monetary Policy.

The graph from Rudebusch’s shows a modified Taylor rule. According to Rudebusch’s estimate, the Fed Funds rate should be around minus 5% right now if we ignore unconventional policy (obviously there is a lower bound) and probably close to minus 3% if we include unconventional policy. Obviously the Fed can’t lower rates using conventional policy, although it is possible for more unconventional policy.

# Third, usually the engines of recovery are investment in housing (not existing home sales) and consumer spending. Both are still under severe pressure with the large overhang of housing inventory, and the need for households to repair their balance sheet (the saving rate will probably rise – slowing consumption growth).

On this third point, I put together a table of housing supply metrics last weekend to help track the housing market. It is hard to have a robust economic recovery without a recovery in residential investment – and there will be no strong recovery in residential investment until the excess housing supply is reduced substantially.

During previous recoveries, housing played a critical role in job creation and consumer spending. But not this time. Residential investment is mostly moving sideways.

It isn’t the size of the sector (currently only about 2.5% of GDP), but the contribution during the recovery that matters – and housing is usually the largest contributor to economic growth and employment early in a recovery.

Two somewhat positive points: 1) builders will deliver a record low number of housing units in 2010, and that will help reduce the excess supply (see: Housing Stock and Flow), and 2) usually a recession (or double-dip) is preceded by a sharp decline in Residential Investment (housing is the best leading indicator for the business cycle), and it hard for RI to fall much further!

So I’m sticking with a slowdown in growth.