On the media... by gimleteye

Ed Wasserman on the media, in the opinion page of yesterday's Miami Herald, reflects on how the print media will survive: "How are we going to pay for covering the news".

Wasserman mention an idea I've advocated-- that newspapers should be owned by charitable organizations. There is a reason that the most adventurous reporting in the state is from the St. Pete Times, and it is not because the St. Pete Times' reporters are brighter than the Herald's. The St. Pete Times is owned by a non-profit, and its managers do not have to worry about how Wall Street values its earnings relative to other news organizations. On this point, Wasserman cautions to be careful what you wish for, because the funders of charitable organizations-- take the Knight brothers for instance-- were very conservative during their lifetimes and could impose those views into the future.

Nevertheless, newspapers should not have to compete with internet "news" providers like Yahoo or other portals. It is not a fair comparison, yet one that Wall Street investors insistently press. The results are clear enough: newspapers have a dual role of providing information to subscribers and a cash harvesting machines for financial engineers. With the sharpest contraction of real estate markets since the Great Depression, newspapers have turned out to be lousy investments at the very moment readers need more and better information.

One example is the bad quality-- really absence entirely-- of in-depth reporting on the debate in Congress how to reform the mortgage banking and real estate financing industries. Both political parties are stumbling in the dark, under pressure from the industries that profited from a vacuum in regulations governing the creation of assets from debt.

The newspapers that overly relied on real estate advertisements from production homebuilders, for instance, swerved away from looking at the economic crisis as it developed. Alan Greenspan, who proclaimed that there was nothing wrong with the credit derivatives markets-- that in fact they were beneficial to the economy by "diversifying risk"--was fawned over by the print media.

There is an even better example, closer to home. While The Miami Herald has been good-- and on the right side of the public interest-- on the issue of the Urban Development Boundary, the newspaper studiously refrained from criticizing Miami's development community for pushing all edges of the envelope during the creation of the housing market bubble.

I recall, in 2004, the presentation of evidence to the Miami-Dade county commission by county planning staff showing the historical trend line of housing permit applications and new housing stock, and how the trend line had sharply increased from 2002-2003 far outside the statistical mean. At the time, the development lobby-- including the most respected, permanent fixtures in the lawyering class at county hall-- argued for moving the Urban Development Boundary and in preparation for the massive new cities planned at the western and southern edges of the county, based on the "inevitable" fact that the trend line was wrong. They claimed we were now in a new historic phase of housing development, the flood would never cease, and demanded approval of all new housing and zoning requests.

The county commission, at least the unreformable majority, yawned if they even understood what a "trend line" represents. In fact the only trend that matters is campaign contributions; all other trends need to be repressed in order to properly service theirs.

The Miami Herald never reported the persuasive trend lines demonstrated by county planning staff on the housing bubble.

One of the interesting ideas for regulatory reform as a result of the housing market implosion and threats to the solvency of world-wide credit markets comes from Great Britain. Charles Goodhart, a professor at the London School of Economics (and a former monetary policy-maker at the Bank of England) argues for monitoring whether the pace of loan growth or the rate of increase of asset prices is moving sharply above trend, and requiring banks to find more capital if the alarm sounds. The Economist writes, "Had such a rule been in place, the sub-prime mortgage boom might not have been so explosive." (April 26, 2008)

The problem is that the print media and the editing of newspapers have been cheerleaders for asset bubbles. When the trend line anomaly was disclosed by Miami-Dade county staff in 2004, it was not reported for a reason: more houses mean more newspaper advertising revenue.

Today, the newspapers are struggling for survival. It is certainly a worthy topic to be taken up by one of the nation's premier local newspapers that has been badly hobbled by budget cuts in order to satisfy investor demands and Wall Street expectations. But the trend line isn't good for the industry and it is not good for democracy.

If the White House and Congress are willing to manipulate monetary policy to save financial institutions whose greed has lead to the greatest economic jeopardy since the Great Depression, why wouldn't they also recognize the need for altering tax policy: a new set of IRS rules for the print media, recognizing the fact that our democracy cannot survive without an independent, free press.