Media and the Market Place II: New York Times Xmas ‘Gift’ to Goldman Sachs

15 January 2009.

15 January 2009.

15 January 2009. David Caploe PhD, Chief Political Economist, EconomyWatch.com.  In the first part of this series, we discussed the general ways media of all sorts has become an inescapable structural feature of today’s global political economy, creating what we call economedia ©, which links together markets / investors / analysts all over the world in a 24-hour-a-day world-wide trading network that literally never stops.

In this context, we highlighted how the centuries-old phrase, ‘buy on the rumor, sell on the news’, has become more urgent than ever in this new economediatic © environment.

Today, in the second part of this series on the emerging world of economedia, we will take a look at how the timing of the publication / release of a particular item of media can make a HUGE difference in the effect the substance of that item has on both the subject and those affected by that subject, whether as clients / investors / regulators / whatever.[br]

Let’s begin with the GENERAL rule that governments / politicians / companies / organizations of all sorts almost ALWAYS release bad news on a Friday afternoon.

Why?

Because most people – admittedly not nerds and others glued to the computer their every waking moment, but most people with lives – are MORE than ready for a long and liquid happy hour by the time Friday afternoon rolls around, and the last thing in the world they want is to pay any more attention than necessary to something outside their own immediate lives and concerns.

Tie this to the fact that, the next day, people with children are usually involved in some kind of activities with them [organized or not], and both they and everyone else are busy doing the weekly chores like shopping / laundry etc etc etc, and the result is Saturday is the day when the level of media consumption is lowest.

Therefore, if you want to maximize the chances people DON’T see something bad about you, releasing it on Friday afternoon is the best time, so whatever it is you’re simultaneously ‘letting everyone know’ – while desperately hoping they DON’T see it – will have run its course through the news cycle – always fast on the weekends, and now, with the plethora of “news” sources, running even faster – by the time people have a chance to catch their breath, usually on Sunday afternoons, they won’t see whatever it is you’re praying they’ll miss.[br]

Now, take this GENERAL rule of ‘managing bad news’, aka ‘media manipulation’, and multiply it at least three-fold when it comes to big holiday weekends – which, in the US at least, are almost always three-day affairs – and ten-fold or more when it comes to year-end holidays like the endless round that begins in late November with the US Thanksgiving, and then accelerates into hyper-speed with the Christmas / New Year’s bacchanalia of late December / early January.

This can last anywhere from a week – if Xmas and New Year’s are on a Saturday or Sunday – to times like this year, when they fell on Fridays, meaning people stop paying attention to anything by Wednesday night, as the Thursday “eve” is devoted to intense logistics and/or partying, with the result of a good 10 or 11 days when no one is paying attention to much of anything except themselves and their families / friends.

In this context, probably the best way to “bury” something you really DON’T want people to see is to publish / release it on Christmas Eve, the start of a more-than-week-long-period when the focus is on family and the celebration and/or depression that brings on, and certainly not the state of the world in general.

So guess WHEN the New York Times decided to publish a truly shocking and LONG investigative expose of the way in which, for years, the too-big-to-fail [TBTF] banks and hedge funds, above all, the ever-inventive Goldman Sachs,

were selling their own clients packages of mortgage-based securities they KNEW were bad –

AND, at the exact same time, making bets against those very same packages of bad debt, so they themselves not only wouldn’t be hurt, but would profit nicely when the grim reckoning finally came ???

That’s right, Christmas Eve 2009 – the start of a 10-day period when the chances of most people seeing this CRUCIAL piece of investigation and analysis – let alone having the chance to discuss and digest it – were just about ZERO.

The piece itself – by the Times’ top business investigative correspondent Gretchen Morgenson and her colleague Louise Story – is absolutely mind-blowing, for reasons that will become clear when we give you a few tidbits of the gold mine they uncovered.

And do be sure to read the entire thing yourself – which is one reason WE are drawing attention to it in this POST-holiday period, when people ARE getting back to work, and taking a look at what’s going on.

But the key thing is that – by publishing it when they did – the Times cleverly revealed the double game by which major media organizations in this brave new economediatic © world actually help the companies on whom they’re supposedly keeping a watchful eye “in the public interest”:

to be sure, they are indeed putting out a journalistic piece of incredible value and significance – but by doing so when almost no one will actually SEE that piece, they are giving the companies involved the invaluable gift of near-invisibility.

[quote]

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance.

Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

[/quote]

So not only were major Wall Street firms playing their OWN double game – selling their clients huge packages of CDOs that were supposedly ‘safe as houses’, and then simultaneously ‘selling short’ AGAINST those CDOs –

but one of the major domos of a boutique firm SPECIALIZING in this sordid little game has now become a ‘special counselor’ to the ever-compliant-to-his-masters Secretary of the Treasury Tim Geithner !!!

It really boggles the mind, doesn’t it ???

And it goes on for FOUR pages on the Times website – when most business stories get ONE page, and the occasional ‘more important’ ones get TWO.

So why on earth did the Times, literally, bury this obviously CRUCIAL story on Christmas Eve – knowing full well almost no one would see it ???

Hard to see it as anything BUT the economediatic © double game so many media organizations are playing every day with the corporations they are allegedly watching over, allegedly in the public interest.

Again, you should read the whole article, which includes the news of just-starting – you have to wonder what took them so long – investigations by Congress, the SEC, and Wall Street’s own ‘watchdog’ body.

But we will leave you with just a couple of the more especially juicy tid-bits.

[quote]

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created. …

Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

‘The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,’ said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York.

‘When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.’

Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.

[/quote]

Now all of these quotes are from the first of the four pages of the piece – so you can imagine what the rest of it holds, but, again, don’t imagine, read it for yourself.

By the time you’re finished, and have stopped bouncing off the walls with anger at GS / Tricadia and the rest of the ‘gang’ – pun DEFINITELY intended – stop and ask yourself this question:

‘Since the Times clearly knew this was an incredibly important package of information – not to mention a brilliant piece of investigative reporting by two of its own top correspondents – why on earth did they choose to bury it so deeply by publishing it on Christmas Eve, when, again, they KNEW practically no one would see it ???’

In part three of this initial series on economedia © today, we’ll take a look at a few of the OTHER stories the Times ALSO buried during this holiday season – one that might have been a lot less merry if people had been more aware of what has actually been going on in the world, but which the Times, for whatever reason, seemed to make as hard as possible for them to see.

Guess they didn’t want to kill the celebratory buzz.

 

David Caploe PhD

 

Chief Poltical Economist

Economy Watch.com