Belmont Club

The price of information

How do you keep someone from using what he knows? The Los Angeles Times describes a warning by Neal Barofsky, the special inspector general for the banking rescue program, who says the government bank rescue package can wind up enriching the very people who put it into effect.

A controversial $40-billion government program to buy toxic securities from ailing banks has a flaw that law enforcement and financial experts say could allow traders to illegally profit from inside information. … The danger is that traders in the government program could wield enormous influence in the market — and there are no explicit restrictions on how they could use that influence to profit inside deals of their own.

For example, a trader could privately buy up groups of toxic mortgages on the cheap then later drive up the price by purchasing similar mortgages using government money. The practice, known as “front running,” could be technically illegal, but the firms are not barred from coming into the program with such securities and then trading them, Barofsky said.

The Treasury says it will be on the alert for any sign of hanky-panky, but Barofsky was skeptical that Treasury could beat Wall Street at its own game. “It is a conflict by design,” he said. “The Treasury cannot possibly match wits with the innovation and aggressiveness of Wall Street … If you give them a set of rules and there are technicalities and legal loopholes and things we haven’t thought of, they are going to find that out, not because they are bad, but because that is what they are supposed to do. They are supposed to seek out profits at all costs.” But in the past Wall Street had to seek out profits with their own, or their investor’s money. With government intervention on the rise they now have the taxpayer’s dollar effectively at their disposal.  On Wall Street information is worth millions. Insider trading can make you rich.

But the value of information depends on its position in a transaction chain. The newspapers for instance, aren’t able to get anywhere near the return on the information that they sell. Things are getting desperate, recently the Australian government proposed to potentially monitor network traffic to make sure its use was in compliance with copyright, according to the Register. It is being opposed by ISPs and other groups. Dan Rather recently wrote an article in the Philaldelphia Inquirer arguing that a Presidential Commission should be convened to save the mass media. Rather denies that he wants the government to bail out the media companies, saying he only wants “recommendations for improving and stabilizing it”. Well he can have that for free from universities and think tanks. Ultimately the mass media isn’t going to be saved unless it can find a source of dollars for what it does. So Dan goes fishing in the government waters. After all, if they make them an offer, then they might be tempted to accept.

You don’t have to care about media companies or reporters to care about the state of the news, because if it’s in trouble – and it surely is – this country is in trouble. That’s why I recently called on President Obama to form a commission to address the perilous state of America’s news media. … I am not calling for any government bailout for media companies. Nor am I encouraging any government control over them. I want the president to convene a nonpartisan, blue-ribbon commission to assess the state of the news as an institution and an industry, and to make recommendations for improving and stabilizing it.

In marked contrast is the situation of Bill Roggio, at the Long War Journal, which operates on private donations at a level that would probably have been petty cash back in the salad days of the big networks. Eight grand a month is spent on overhead. The cost of a single embed in a war zone is $10,000. The Long War Journal needs money, and are asking for donations. “We need your help today. We will spend your money prudently, as we always have. One hundred percent of your donation will go to support operations at The Long War Journal.”

Our fixed costs are $8,000 per month. This includes salary, health insurance, web hosting and site maintenance, communications, and other expenses. One fully sponsored reporter embedded for one month in Iraq or Afghanistan costs us $10,000. One major topical report, analyzing one topic with continuity over time and space with accompanying multimedia presentation, costs an estimated $20,000. We have three reports we wish to do this year: a marching map of the Taliban control in Pakistan; a mapping of US Predator strikes in Pakistan’s northwest; and an Afghanistan red map. Every one of our extensive reports to date, such as Iran’s ratlines into Iraq, Observations on the US airstrikes in Pakistan, and Inside Iraqi Politics, has received favorable recognition in the media and in the blogosphere.

So the way I figure it, anything over $96K a year is pure hard news because that will cover fixed plus correspondents. It would be interesting to figure out how much a traditional news agency would pay for an equivalent service. Those who support what the Long War Journal does might want to go over to Bill’s and help out. They’ve been doing a good job. One other effort that has recently been in the news is Journalism Online, whose website describes their business model.

Each publisher’s website is powered with the Journalism Online e-commerce engine, which allows customers to have one easy-to-use account common to all the publishers’ websites. This allows consumers to sign up just once to purchase annual or monthly subscriptions, day passes, and single articles from multiple publishers. The password-enabled payment system is integrated into all of the member-publishers’ websites, and the publishers have sole discretion over which content to charge for, how much to charge, and the manner of charge.

The two pieces of technology it seems to employ are a registration/ID system and a method for billing. Presumably the idea is to capture the traditional newspaper subscription dollar and distribute the proceeds to those who join the pool. The interesting question is what value the participating publishers will bring to the pool and what mechanisms exist to reap the rewards in proportion to that contribution. One would think that Long War Journal would fill a definite niche capability in the “Long Tail” of Internet business that many a regular newspaper doesn’t have. At any rate, the replacement for the current and dying news model will probably be another business model; and nothing that will come out of any Presidential Commission.

Update

JD Johannes, who produces video documentaries, describes life among the “unilaterals” in Afghanistan; that group of people who aren’t working directly in the sphere of Coalition Forces. To some small extent, he’s proof that an alternative world to the Dan Rather universe exists. And maybe it’s needed.

[youtube oAkePgf8hkA]

“Both these parties are in real trouble”