July 2005 Archives
How not to cover Murdoch
The New York Times can't compete with the Wall Street Journal on general business and finance stories. But it does have aspirations to own one particular beat: media, that most New York of American businesses. So when Lachlan Murdoch resigned from News Corporation on Friday morning, it was inevitable that the story would appear on the front page of Saturday's Times. What was not inevitable was that the NYT story would be so bad.
There was a lot of time to write the story. The news was released early on Friday morning, which means that Richard Siklos had all day to come up with something good. And he did, if by "good" you mean "long": his article comes in at some 1,600 words.
But evidently the extra time ended up simply giving Siklos (along with contributors Geraldine Fabrikant and Katharine Seelye) more room to hang himself.
The angle they ended up taking is simply bizarre: "Murdoch Son Leaves News Corp., Tossing Succession Into Question" runs the headline. But if anything the opposite is the case: with Lachlan out of the picture, it's more certain than ever that if and when Rupert retires or dies, he'll be replaced by Peter Chernin. Maybe, at some distant point in the future, James or even Lachlan could end up running the company. But right now I'd say there's less question over Murdoch's successor than ever – as you might expect when one of the contenders takes himself out of the running.
Moving on, it doesn't take long for the story to descend into incoherent cliché. "The abruptness of his departure suggested a palace intrigue of the kind that some of the News Corporation's media holdings - like The Sun in London or The New York Post newspapers or the Fox News Channel - would follow with great relish," we're told. Huh? Can anybody really imagine the Sun or Fox News caring in the slightest about this story? No one at either of those places needs to be gagged by Rupert on this one: it's simply not a story of mass appeal. Most Fox News viewers don't even know who Rupert is, let alone care about Lachlan.
Even more hilariously, New York Times house style seems to dictate that we pause in the middle of the sentence to be told that the New York Post is a newspaper. Then we're told again in the following paragraph, which talks about "The New York Post newspaper, where he was publisher". The first time it seems quaint and mildly patronising. The second time, it's simply farcical.
Indeed, talking of NYT house style, throughout the piece the name of the company in question is always "the News Corporation", not "News Corporation" or just plain News Corp, which is what all human beings call it. What the definite article adds, I have no idea.
Pretty soon, the story lapses into utter narrative incoherence. Here's a typical sequence:
In a statement, Lachlan said, "I would like especially to thank my father for all he has taught me in business and in life."
In the quarter ended March 31, the News Corporation reported earnings of $400 million on sales of $6 billion, compared with earnings of $434 million on sales of $5.2 billion. Wall Street's reaction to the news was muted, with shares of News Corporation down 23 cents, to $17.34 yesterday.
Merrill Lynch media analyst Jessica Reif Cohen said that with Lachlan's departure she believes James "becomes the heir-apparent to his father's empire. However, this remains a very long-term issue, as we continue to expect Mr. Chernin will take the helm of the company when Rupert Murdoch retires."
Lachlan Murdoch was raised in the United States but spent six years working at, and eventually running, the Australian businesses in the 1990's. His record in that country, where he was chairman of its newspaper operations, was blemished by a $475 million (Australian) investment in One.Tel, a telecom company that collapsed in 2000.
Each paragraph is utterly unrelated to the last: it makes for exhausting reading, and precious little illumination – News Corp earned $434 million when, exactly? The previous quarter? The same quarter last year? And when the Times talks about "Wall Street's reaction to the news," does it mean the earnings or the Lachlan news? Indeed, did the earnings even come out yesterday?
The NYT doesn't even do us the service of telling us what A$475 million is in US dollars, let alone give us a proper noun for the "its" in "its newspaper operations" to refer to. It's all extremely difficult to understand – and actually impossible to understand, when you get a bit further down the article to the bit where it tries to explain the family shareholdings.
I could go on like this indefinitely, nit-picking the article apart, but you get the picture. There is one moment of comedy: we're told that "while Lachlan is more pensive, James is more cerebral". Hm. Glad that's cleared up.
It's entirely possible to write a perfectly clear and concise article on this subject: the Guardian did an admirable job, and I'm sure most other newspapers did too. But all too often, the New York Times, with its overlong articles and need to somehow squeeze into the story every single fact it can lay its hands on, publishes puddings like this. If the Times really aspires to owning the media beat, it's going to have to rise to the occasion when something worthy of the front page comes along.
Posted by Felix at 20:15 EST | Comments (2)
Stock and flow
I've already made it very clear what I think about credit cards: this post is an attempt to flesh out one theory of how and why they work the way they do – to the benefit of banks and the detriment of consumers. On the one hand it's all blindingly obvious, but on the other it's not something I've really seen spelled out in quite this way, so I thought I'd take a crack at it.
Most people, if you ask them what their highest-value asset is, might point to their car, or their heavily-mortgaged house, or something like that. In fact, their highest-value asset is much more likely to be their job: the present value of their future income is enormous, and almost certainly worth more than their home even without a mortgage. But although people don't really think that way, they do understand it on a gut level, just as they understand asset-liability mismatches on a gut level.
What I'm talking about here is the difference between stock and flow, and the way in which credit card companies take advantage of that difference to make enormous profits. In financial markets, of course, there's always someone willing to convert stock to flow or flow to stock: any given income stream is worth, today, a certain fixed amount of money. If I have a stock of money, I can convert it into an income stream by buying bonds, and if I have an income stream there's bound to be someone I can sell it to for a fixed amount.
When it comes to personal finance, however, the equivalence breaks down. You can't monetize the present value of your future income: I can't go to some broker and tell him he can have 10% of all my future earnings in return for an upfront payment of, say, twice my annual income.
As a result, unable to switch at will between stock and flow, people like to match their assets to their liabilities. If their main asset is a flow – their income – then their liabilities should be flow liabilities too.
Why did so many people feel uncomfortable about privatization? Because it took a stock asset (a national company), sold it, and then applied the proceeds to flow liabilities – the general fiscal account. It was called "selling off the family silver" to pay day-to-day expenses: an asset-liability mismatch. The general idea is that flow liabilities – the monthly bills – should only be paid with flow assets – monthly income. Selling off assets to pay the bills is unsustainable.
The genius of credit cards is that they slowly and invidiously turn flow liabilities into stock liabilities. A credit card is a wonderful way of paying for something today if you're not going to get paid until tomorrow. So long as you pay off your debt at the end of the month, it's an interest-free loan: free money. It feels like flow debt rather than stock debt: you use your income over the course of the month to pay for your purchases over the course of the month.
Credit-card debts increase in small increments: a purchase here, a purchase there, a finance charge at the bottom of the statement. Any individual purchase can be justified. Here's a thought experiment: tell someone that he has a credit card with a $5,000 credit limit, and let him make purchases until the credit limit is reached. There's a good chance he'll do so, even if the interest rate on the card is over 20%. Now, take that same person, and offer him a $5,000 loan, unsecured, at an interest rate of 10%, which he can then spend on whatever he likes. There's a good chance he'll refuse, even though going that route would save him money in the long term compared to going down the credit-card route. That's because the second choice is stock debt, and people don't like stock debt because they don't have stock assets. The first choice is flow debt, and that's fine, because people do have flow assets – their income.
What's more, people always underestimate their future expenditures. They'll buy something now, justifying it with the idea that they'll spend less next month – something they rarely do. Most people who max out their credit cards don't intend to max out their credit cards. It just happens, almost while they're not watching. That's another reason why our thought-experiment guy will refuse the $5,000 loan: even if he understands that it would work out cheaper than a $5,000 credit-card balance, he doesn't think he'd ever max out a $5,000 credit card. A loan carries debt service whether it's spent or not, so in fact it's rational to take the credit card rather than the loan if you think you won't carry much of a balance on it.
But anyone who's ever got a credit card bill, whether they've paid it off in full or not, has suffered a certain amount of cognitive disconnect between the large number at the bottom of the bill and the seemingly small numbers which constitute it. How could a series of individually small transactions add up to such a huge amount? When you're out there spending, it really doesn't seem that big. But when the bill arrives, suddenly those flow transactions – day-to-day monthly expenses – have been transmogrified into a whopping great big stock of debt.
That's why, individuals would be much better off if they took out loans to pay their expenses than if they borrowed on their credit cards. (They'd be better off still living within their means, of course.) But loans are large, up-front, stock transactions. They can be justified in exceptional cases, such as buying a house or a car, or starting up a business. But people won't take out a loan to pay a restaurant bill, because they'll be paying off the loan long after the asset they've bought with it has been literally flushed down the toilet.
What's more, any fool can see that if you need to take out a loan to pay a restaurant bill, you shouldn't be eating at that restaurant. Increasing your stock of debt for the sake of a flow transaction like eating out is a classic asset-liability mismatch. And yet people pay for their meals on their credit cards the whole time, and, as often as not, fail to pay those credit cards off in full every month. To all intents and purposes, they've borrowed the money for the meal, and they're paying interest on it at exorbitant rates.
Credit cards, then, are a wonderful way for banks to help consumers delude themselves that they're living within their means. Most people who carry a revolving balance on their credit cards are simply spending more than they're earning, month in and month out. It's unsustainable, but the existence of their credit cards lets them get away with it for a much longer time than if they had to justify their expenditures to their bank manager. The key hurdle becomes not "can I pay my entire bill off in full at the end of each month", but rather "can I pay the minimum amount at the end of each month". The answer to the second question is nearly always yes – until you're in a hole of enormous magnitude.
Eventually, this entire edifice of credit-card debt could come crashing down onto the banks, causing them as much harm as it's presently causing consumers. For the time being, however, they're making billions from it. If that annoys you, you can do your bit. Pay off all your credit cards with a loan – one secured on your home, if necessary – and always pay them off in full every month from here on in. Otherwise you're just pissing your money away.
Posted by Felix at 19:25 EST | Comments (7)
London
I've just got back from London, after an absence of about a year in which time I bought a New York City apartment. I don't know if that's why, but this time was my first visit ever where I didn't feel in some sense that London was home. It's a great city, and I still love it – but after almost 9 years' absence, I feel more like a visitor than a Londoner when I'm there.
When I left, London didn't even have a mayor – now he's been re-elected, by a reasonably comfortable margin. I think he's done a great job: the congestion charge was sheer genius, backed up with a Giuliani-like determination to push it through in the face of enormous inertia. And Ken's not resting on his laurels: he's upped the charge to £8 from £5, and is likely both to raise it again and to extend the congestion area to include a large chunk of Kensington and Chelsea.
At these sort of levels (£8 is $14 at today's exchange rate), people only drive in to central London when they really need to. Ken also seems to have tweaked the timings on London traffic lights so that they stay on red for longer than they used to, with more time given over for pedestrians instead. At the same time, he's invested heavily in the bus system, which is clean, cheap and efficient. When I lived in London, I almost never took buses; now, when I visit, I take them the whole time.
The upshot is that the number of cars in central London is down dramatically, while the number of people taking buses is increasing impressively. Bus mileage is at its highest point since 1957, and ridership grew more than 38 per cent between 2000 and 2005. Last year there were 1.8 billion passenger trips on buses – by my back-of-the-envelope calculations, that equates to easily tens of millions of car journeys through central London which Ken has stopped from happening. In the process, he's made life much nicer for anybody wanting to get around the capital.
Traffic is even lighter, it feels, at the weekends, when the congestion charge is not in force: it really seems as though Ken has changed Londoners' habits, and helped them to move away from a reliance on their cars.
Of course, the vast majority of people not taking a car are taking public transport instead, which is why the attacks of July 7 were so particularly nasty. In nearly every way, however, the bombings didn't really change anything, which is wonderful. I was in London for the rally afterwards, and for the very touching 2-minute silence the following Thursday – Londoners were certainly hit hard by what happened. But to their eternal credit, they didn't react by lashing out at anybody, and they bore the disruption with stoicism and general good humour. I simply can't imagine New Yorkers reacting the same way. If 50 people were killed by suicide bombers in the subway here, all manner of chaos would probably ensue, and I daresay underground ridership would fall noticeably for many months before a lot of people felt safe getting on a subway train again.
Londoners even coped well with what to me was an extremely worrying turn of events: the attempt at a second suite of bombings, two weeks after the first. Go back to those buses: on average, the amount of time one should expect to wait for a bus to arrive is equal to the amount of time one has already been waiting. Terrorist attacks are the same. In the immediate aftermath of September 11, we all feared that another attack was imminent. Today, almost four years later, we – quite rationally – feel safer. London, similarly, had gone a long time without any terrorist incident, and I very much hoped that July 7 would be the last attack for many years. The fact that the peace lasted only two weeks is very bad news: it implies that similar attacks might well come sooner rather than later.
Clearly, the Metropolitan Police got even more worried than I did, since the following day they ended up pumping eight bullets into the head of a perfectly innocent Brazilian chap whose main mistake was living in the same block of flats as – well, we don't know, but in any case it was a block of flats which the police were interested in.
I do understand that if you're pointing a gun at (a) a suicide bomber who is (b) armed and (c) capable of exploding himself and killing any number of people around him, it makes sense to kill him. I also understand that in the heat of a chase and in a situation requiring split-second decisions, no one can make the right decision every time. But. The commissioner of the Metropolitan Police says that there have been seven incidents like the one on July 21 just since July 7: that's one every 65 hours on average. No shoot-to-kill policy should come into play every 65 hours: that's a guarantee that it won't be very long until a tragic mistake like this one is made.
I was horrified at the news that the executed man was innocent: the idea of shooting someone in cold blood like that seemed very unBritish. My father said that the police kill innocent people all the time in places like New York, but I don't think that's true. I can't think of any case here since Bloomberg was elected and appointed Ray Kelly as police commissioner – I'd be very interested to hear if there has been one. In fact, I'd love to see numbers on how many people were killed by NYPD cops altogether during the Bloomberg administration. In any case, shooting suspects repeatedly in the head without any intelligence as to their identity is a desperate act of a police force which does not seem to be in control of the situation, and I suspect, after reading William Finnegan's article about the NYPD in last week's New Yorker, that it wouldn't happen here. Not that I want to find out.
But there was a big difference between 9/11 and 7/7, and not simply that of scale. 9/11 was an attack on America, and on New York, and, I suppose, on the Free World. "We are all Americans now" and all that. 7/7, by contrast, felt much more like an attack on Londoners than on London. London itself got back to relatively normal relatively quickly: the carnage and horror was mostly hidden away underground. The long-term effects of 7/7 will be felt mostly in the lives of hundreds of people which have been ruined; the long-term effects of 9/11 are, by contrast, global.
I feel that now New York is less at risk from a terrorist attack than London is. Say what you like about the silliness of randomly inspecting bags on the New York subway: for terrorists planning an attack on a major city, where any major city will do, New York must now be pretty far down their list. New Yorkers might hit New York, but I just don't think New York has militant Islamist youth in the way that England does. For a militant Islamist Englishman, London is the obvious target – and the events of the past few weeks are proof that there is a significant number of such men, willing to explode both themselves and their compatriots.
Yet at the same time London still felt friendlier and more vibrant, in many ways, than New York. It's certainly not as convenient a place to live: I spent £30 on one cab ride from Waterloo to Dulwich, and London's low-rise nature means that you're always a longer walk from any urban amenity than you're likely to be in NYC. But Brixton feels wonderfully alive – more so than ever, really – and is even yuppifying in a very multiethnic way, with an incredibly good new modern Caribbean restaurant called Moca which I would heartily recommend to everyone. Just down the road, in Brockwell Park, is the fabulous lido – a hugely enjoyable and varied day could easily be spent soaking up reggae performances in the park, swimming in the pool, occasionally retreating to the calm of the walled garden at the top of the hill, and never even leaving the confines of one park in a relatively forgotten corner of south London.
London's one of those rarities: a city which is at its best in the summer. The festivals, the bank holidays, the Proms, the Carnival, the precious days of wonderful weather – no wonder plane tickets are so expensive. I went there at a fraught and trying time, and still left loving the city, admiring its inhabitants, and grinning inwardly every time I saw an ad for the Toyota Prius saying that Ken Livingstone had decided to waive the congestion charge for electric cars. Once, on a bus going through Knightsbridge, a fellow passenger and I exchanged glances as a very large and extremely loud American family "joked" around on the upper deck of the bus, annoying everyone but themselves. "Those Americans, what can you do" was the unspoken message we were sending each other: "we Londoners just have to grin and bear it". But I felt like a bit of a fraud: I'm not a Londoner any more, and in fact I'm a New Yorker, which almost (but not quite) qualifies me as being an American myself.
So I come back from wonderful homestyle food on Rivington Street to wonderful homestyle food on Rivington Street, and I'm happy with the place I've ended up. I'll miss London, especially in the summer, but I still think that the corner of Avenue B and 3rd Street is the best possible place in the world to live.
Posted by Felix at 19:26 EST | Comments (5)
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