Asymmetrical Information

From the desk of Mindles H. Dreck:

Bloggers Bite The Press

In recent coverage of the blogging "phenomenon", the mainstream press has taken pains to point out that webloggers can't survive without real reporters. They are right, of course. Bloggers mostly dissect the news, relying on hard news outlets and ribbing the punditry. I'm sympathetic to the journalists' complaint that bloggers criticize the press incessantly even as they are parasitic (or symbiotic, depending on your point of view) with mainstream news outlets.

I must admit to some journalist antipathy myself. Less because I think the press is biased in a Bernard Goldberg sense, but because behind so many stories there is someone with an axe to grind. Sometimes it's the reporter his/herself, but more often it is the subject. Reporters can get caught up in a tenuous grand morality tale, even as something more prosaic (and less newsworthy) is happening.

Two stories appearing in the papers recently illustrate my point.

First, you can't have missed all the gushing coverage of Bill Gross, the undisputed king of the bond management hill. He recently made some scathing comments about GE's increasing leverage, temporarily rocking the debt markets and precipitating a 6% fall in GE's stock. Smelling an Enron, The Times' Kenneth Gilpin ,Gretchen Morgenson and Alex Berenson lapped it up. Lots of other press, including the Wall Street Journal did the same.

Bill Gross actively manages $290 Billion in bond investments. GE is one of the largest corporate debt issuers. By definition, Gross has a position on GE paper, and corporate debt in general. For all I know his concerns about GE are 100% genuine, but don't the reporters telling his story have an obligation to look at his interest in this? In fact, Gross has a reputation for "talking position" on the street. Some of this talk is envy, but the journalist's job is to be skeptical, right? To at least mention it, or consider the possibility? But they didn't. They swallowed his story hook, line and sinker. Holman Jenkins , on the Journal Op-Ed page, is the only columnist I've seen that even mentions the potential conflicts.

Whether these reporters were simply used isn't clear. But you can't argue that they aren't ripe for it. It's reasonable, if not mandatory, to ask who benefits from these market moves.

Another example relates to a lawsuit against Arthur Andersen. Long before Enron came to light, Andersen got in trouble for auditing the books of a Ponzi scheme known as the "Baptist Foundation of Arizona". New investors' money was used to create the impression of returns to early investors, the twist being it was a religious organization doing the scamming. Andersen agreed to settle their liability with a whopping $217 million that was supposed to be paid by April 15. Even though the Andersen's captive insurer has $700 million in assets, it has announced that it will not make this payment, citing the enormous claims certain to come of current litigation and investigations against it - Enron-related, of course.

This is actually a simple, required action on the company's part. An insurance company measures its solvency by looking at its liabilities, which include estimates of future claims against its assets. Given the size and scope of the Enron investigation, there is no way that Professional Services Insurance Co. (PSIC) has enough assets (investments plus reinsurance coverage) to pay all of its potential liabilities. The proper thing to do is declare insolvency, and allow the competing claims on its assets to be determined by a court or trustee in a fair manner. In fact, there is a small silver lining in the fact that it is a Bermuda insolvency, which means the reinsurance can be claimed up front and the claims dealt with in a relatively efficient manner (compared to the U.S., where it takes forever). So claimants should get some money fairly soon.

The truth is, it would be a terrible fiduciary decision to give the BFA claimants the settlement even as the Enron liabilities are well known. No court or court-appointed trustee would do such a thing, because the Enron claimants would be all over them in a New York minute.

However, when the press gets hold of it, it is all about 77-year old victims of BFA being ripped off yet again by Andersen. The press sees a grand morality tale and writes about that. In doing so, they become a tool for the prosecutors and plaintiffs lawyers, who would like to take their entire award and impair PSIC's ability to pay other claimants.

The reporters linked above have become a servant to one side of a story. They may do it out of bias, or, as in the BFA case, the story may just be totally uninteresting when viewed objectively ("accountant's insurer does legally appropriate thing - film at 11"). So they are biased towards the most neatly packaged narrative. Which, as you all know, is usually not the whole truth.

I admire the reporting profession, and I love my news. I notice this sort of thing all the time, though, and that's what makes me so damn cynical about the press. Perhaps we like opinion so much because we're not sure objective news exists.

Notice I didn't say "anymore" at the end.

Posted by Mindles H. Dreck at April 1, 2002 10:10 PM | Technorati inbound links