Saturday, March 21, 2009
Palm Pre- Is this a new beginning or the end of Palm? FROM BARRONS
Interesting Article from Barrons-
Palm: Waiting For Opening Day
from BARRONS.com: Tech Trader Daily - Barron's Online by Eric Savitz
For investors in Palm (PALM), the company is now in a sort of spring training period - what matters is getting ready for opening day. No one really cares if the Yankees have the best record in in the Grapefruit League; and likewise, the Street has decided to simply ignore the absolutely nightmarish numbers Palm posted for the February quarter. Palm has one more free pass ahead; May’s report will be even nastier still, and investor won’t care unless there is an acceleration in cash burn. Palm is a company that, by design, is going down in flames, with every hope of rising Phoenix-like from the ashes.
Whether or not you believe in the stock here simply boils down to how you feel about the upcoming launch of the Palm Pre. If you think the Pre is a winner, and that the company has enough cash to see it through, you buy the stock. If you think the new handset might be late or disappoint, they you want to short it. There’s basically no intermediate position. It’s a two-outcome stocks: agony and ecstasy.
I will dispense with the usual post-earnings analyst rundown I might normally do, and instead sum up the current key debate points:
* The Palm Pre is expected to ship before the end of June; some analysts think it happen before the end of the May quarter, but most figure it will be later than that.
* The company insists that it now has enough cash to carry it through the launch; but if the Pre is at all late, it could be an issue. The company is burning close to $100 million a quarter, and now has a little over $300 million in the bank including the proceeds of a recent stock offering.
* The bulls think the Pre is a revolutionary device that will lure away iPhone and BlackBery users…
* …But the bears contends that there is so much competition in the smartphone space that the company will have trouble getting traction.
* The bulls also think there is a chance the company could end up getting acquired.
Price targets on the stock range from the low double-digits down to zero. It’s all or nothing.
PALM today is up 23 cents, or 3%, to $7.94.
Palm: Waiting For Opening Day
from BARRONS.com: Tech Trader Daily - Barron's Online by Eric Savitz
For investors in Palm (PALM), the company is now in a sort of spring training period - what matters is getting ready for opening day. No one really cares if the Yankees have the best record in in the Grapefruit League; and likewise, the Street has decided to simply ignore the absolutely nightmarish numbers Palm posted for the February quarter. Palm has one more free pass ahead; May’s report will be even nastier still, and investor won’t care unless there is an acceleration in cash burn. Palm is a company that, by design, is going down in flames, with every hope of rising Phoenix-like from the ashes.
Whether or not you believe in the stock here simply boils down to how you feel about the upcoming launch of the Palm Pre. If you think the Pre is a winner, and that the company has enough cash to see it through, you buy the stock. If you think the new handset might be late or disappoint, they you want to short it. There’s basically no intermediate position. It’s a two-outcome stocks: agony and ecstasy.
I will dispense with the usual post-earnings analyst rundown I might normally do, and instead sum up the current key debate points:
* The Palm Pre is expected to ship before the end of June; some analysts think it happen before the end of the May quarter, but most figure it will be later than that.
* The company insists that it now has enough cash to carry it through the launch; but if the Pre is at all late, it could be an issue. The company is burning close to $100 million a quarter, and now has a little over $300 million in the bank including the proceeds of a recent stock offering.
* The bulls think the Pre is a revolutionary device that will lure away iPhone and BlackBery users…
* …But the bears contends that there is so much competition in the smartphone space that the company will have trouble getting traction.
* The bulls also think there is a chance the company could end up getting acquired.
Price targets on the stock range from the low double-digits down to zero. It’s all or nothing.
PALM today is up 23 cents, or 3%, to $7.94.
Monday, March 16, 2009
Seattle Paper Goes Online Only
Seattle P-I Goes Online-Only Tomorrow
Peggy Watt, PC World
Mar 16, 2009 12:10 pm
Seattle's oldest newspaper is committing to cyberspace with an online only operation, announcing today that it will cease its print edition with the March 17 edition and become the first U.S. metro daily to switch to an online-only publication.
The Seattle Post-Intelligencer, known as the P-I, already operates a lively online edition that encompasses dozens of reader blogs as well as some written by the newspaper's columnists and editors. It has explored enhanced coverage online with multimedia and forums for years. Its metamorphosis to online-only is an experiment by owner Hearst Corporation, which in January announced that the P-I was losing money and was up for sale.
This leaves Seattle with the daily Seattle Times, which was in a joint operating agreement with the P-I, sharing business and advertising operations.
It's tough times for newspapers, which are seeing advertising revenue fall during a slow economy after experiencing new competition from online information outlets, most of which publish for free. However, many bloggers in particular rely heavily on the original reporting produced by traditional news outlets such as newspapers. In late February, the 149-year-old Rocky Mountain News published its last edition, and is not continuing its online operation. Hearst has also warned that its flagship San Francisco Chronicle also risks closure.
Hearst and other news organizations have been exploring other options in new technology, such as its recent work on a digital paper reader.
(More to come, after I catch up with some friends and colleagues in the P-I newsroom and around the Northwest.)
Peggy Watt, PC World
Mar 16, 2009 12:10 pm
Seattle's oldest newspaper is committing to cyberspace with an online only operation, announcing today that it will cease its print edition with the March 17 edition and become the first U.S. metro daily to switch to an online-only publication.
The Seattle Post-Intelligencer, known as the P-I, already operates a lively online edition that encompasses dozens of reader blogs as well as some written by the newspaper's columnists and editors. It has explored enhanced coverage online with multimedia and forums for years. Its metamorphosis to online-only is an experiment by owner Hearst Corporation, which in January announced that the P-I was losing money and was up for sale.
This leaves Seattle with the daily Seattle Times, which was in a joint operating agreement with the P-I, sharing business and advertising operations.
It's tough times for newspapers, which are seeing advertising revenue fall during a slow economy after experiencing new competition from online information outlets, most of which publish for free. However, many bloggers in particular rely heavily on the original reporting produced by traditional news outlets such as newspapers. In late February, the 149-year-old Rocky Mountain News published its last edition, and is not continuing its online operation. Hearst has also warned that its flagship San Francisco Chronicle also risks closure.
Hearst and other news organizations have been exploring other options in new technology, such as its recent work on a digital paper reader.
(More to come, after I catch up with some friends and colleagues in the P-I newsroom and around the Northwest.)
Cramer On How to Manipulate the Markets Using CNBC
Cramer On How to Manipulate the Markets Using CNBC
Jim Cramer’s 2006 interview on TheStreet.com is now the stuff of legend thanks to John Stewart. But the most amazing aspect of the interview is something that didn’t come up in the course of Stewart ripping Cramer a new one:
Cramer advocated using the scrutiny-free airtime CNBC provided to manipulate the market.
Check out the transcript below. For context: Cramer’s recapping how to artificially drive down the shares of BlackBerry producer Research in Motion.
CRAMER: Who cares about the fundamentals? Research in Motion just blew out the quarter. But look what people can do. That’s the fabulous thing. The great thing about the market is that it’s got nothing to do with the actual stocks. Maybe two weeks from now the buyers will come to their senses and realize that everything they heard was a lie. But then again Fannie Mae lied about their earnings for $6 billion. It’s just fiction and fiction and fiction. And I think it’s important for people to recognize that the way the market really works is to have that nexus of: Hit the brokerage houses with a series of orders that can push it down. Then leak it to the press. And then get it on CNBC — that’s also very important. And then you have kind of a vicious cycle down. And it’s a pretty good game. It can be played for a percent or two.
OTHER DUDE: And then you go long before Mac World?
CRAMER: You drove it down, you certainly have to use the other side.
Jim Cramer’s 2006 interview on TheStreet.com is now the stuff of legend thanks to John Stewart. But the most amazing aspect of the interview is something that didn’t come up in the course of Stewart ripping Cramer a new one:
Cramer advocated using the scrutiny-free airtime CNBC provided to manipulate the market.
Check out the transcript below. For context: Cramer’s recapping how to artificially drive down the shares of BlackBerry producer Research in Motion.
CRAMER: Who cares about the fundamentals? Research in Motion just blew out the quarter. But look what people can do. That’s the fabulous thing. The great thing about the market is that it’s got nothing to do with the actual stocks. Maybe two weeks from now the buyers will come to their senses and realize that everything they heard was a lie. But then again Fannie Mae lied about their earnings for $6 billion. It’s just fiction and fiction and fiction. And I think it’s important for people to recognize that the way the market really works is to have that nexus of: Hit the brokerage houses with a series of orders that can push it down. Then leak it to the press. And then get it on CNBC — that’s also very important. And then you have kind of a vicious cycle down. And it’s a pretty good game. It can be played for a percent or two.
OTHER DUDE: And then you go long before Mac World?
CRAMER: You drove it down, you certainly have to use the other side.
Why doesn't the UK have a Michelle Obama?
From The Sunday Times
March 15, 2009
Why doesn't the UK have a Michelle Obama?
Not since Jackie Kennedy has the White House had a style icon in residence. As Michelle Obama slips into the role of political pin-up, with designers fawning at her feet, Lesley White asks why No 10 can’t produce its own first lady of fashion
First Lady Michelle Obama during the Midatlantic Regional Inaugural Ball at the Washington Convention Center in Washington, DC, January 20, 2009.
They say that politics is show business for the ugly, but sometimes it’s just plain showbiz. When Michelle Obama appeared on the cover of the March issue of American Vogue, sleek as oiled mink in her magenta Jason Wu dress, the first lady was defying one of fashion’s most stubborn stereotypes. The publishing industry’s unofficial position when challenged on why more ethnic models don’t make the covers has been that black women don’t sell glossy magazines. Naomi Campbell and Iman were cover stars in their day, of course, but in general, café au lait is as dusky as the handmaidens of high fashion get, with the Sudanese model Alek Wek the ebony-skinned exception. And it is not simply tradition that shot Michelle onto the coveted front page — after Hillary Clinton, she is only the second presidential wife to be accorded the honour. It is more that fashion is minded to crown its new saviour. It owes her. Or at least it hopes it will.
In January, The New York Times ran a story entitled US Fashion’s One-Woman Bailout? Not to put the woman under pressure, but it seems she is an integral part of her husband’s $800 billion economic rescue mission. So far she has appeared in a tasteful array of outfits: charming in a floral Thakoon Panichgul dress when Barack won the Democratic nomination, dazzling on election night in Narciso Rodriguez’s red-and-black ombré dress, resplendent at the swearing-in in Isabel Toledo’s “cloth of gold” dress and coat. Then there were the 10 inaugural balls, starring Jason Wu’s sparkling ivory one-shoulder gown.
Washington’s new star is both fêted and burdened, a one-woman stimulus package to get a nation spending again. “There’s no doubt that a style-icon first lady sells clothes,” says Averyl Oates, director of buying at Harvey Nichols. “Look at Jackie Onassis and Princess Diana. The confidence and affirmation of a woman in power wearing a designer can catapult them to stardom.” In short, Michelle is her countrywomen’s commander-in-shift, of whom the expectations are vast.
And her remit goes further. With every picture she’s putting middle-aged women on the fashion map. And black women on the glamour spreads. And mothers in a new sassy spotlight. Oh, and curtailing anorexia in the process: each time she beams from a glossy, the broader broad wins the day. Last year, for the second time, Mrs O made Vanity Fair’s International Best Dressed List, an accolade that might have had more to do with cultivating friends in high places than her genius with accessories. But who cares when the cash tills are ringing? Her outfits, when available, have sold out. She is also careful to dress herself and her daughters from the American classic outfitters Gap and J Crew — nobody wants to looks snooty around the new Camelot. After the family sported bits and bobs from J Crew over the inaugural weekend, the company’s shares rose 11%. Nobody loves telling the world how much (or little) their dresses cost more than the canny recessionista Michelle.
But does this practical, outspoken lawyer, who was educated at Harvard and marched for racial equality, want to be the new Jackie Kennedy, adored for her darling dresses? While the fashion press twitter on about frocks, she talks of having a “platform”, by which (to the chagrin of Christian Louboutin) she doesn’t mean an elevated sole, but a place from which to address the nation about what matters to her. Most relevant in depressed times, perhaps, is her championing of the national volunteering programme Renew America Together. Her approach to the job is a sleeves-rolled-up realism, with straight talk about family values and social justice, far closer to home than the apolitical causes embraced by most high-profile wives, more Eleanor Roosevelt mothering the nation through austerity than Princess Di adorned with posh frocks and needy babies.
In our brief love affair with Michelle O she has taken the trouble to wear nice clothes, but she hasn’t looked particularly enthralled by them. Actually, I suspect her of being a fashion fraud — pretending to care about it more than she really does. This is a working woman, pleasant-looking but not the great “beauty” mythologised by her fawning commentariat, a polished power dresser with stroppy hair and hips who, before her bizarre rocketing into the celebosphere, wouldn’t have given her fashion-ambassador potential a second thought (or even a first one).
But Michelle is wise to play the game. The first black woman to rule the White House needs to make a visual impact, to seduce and appeal to those (Republicans, Obama-sceptics, Hillary fans) who never wanted her there. Her Democrat predecessor Hillary Clinton looked trapped by those matching coats and dresses: her lightning-quick change into black trouser suits when she left the White House seemed even more of a blissful relief to her than getting her own political career. She didn’t find a place in the great American heart, which is where Michelle needs to be. “Lemongrass is the new black,” proclaimed the fashionistas after she chose the colour for a state occasion. You can imagine her silent groan as the prospect of, possibly, eight years of obsessive interest in her life and leggings hit her, but she knows what is required.
At 45, Michelle Obama is the most striking first lady since Jackie Kennedy. She’s not the youngest (Hillary Clinton was also 45 when she got the job), but it feels as if she is.
Since Jackie’s departure nearly 50 years ago, there’s been a style interregnum peopled by women with neocon dress sense, stymied when they did make an effort by their thick ankles and weight-bearing hips, but mostly by the all-too-obvious fact that they found fashion trivial (Hillary) or for a younger generation (Barbara Bush). Fragrant Laura did better than her frumpy mother-in-law: chided by her daughters for her “helmet hair”, she moved from half-hearted “clothes”
in her first term to “fashion” in her second, but she pioneered no new looks and her low-key makeover seemed more dutiful than fun.
The exception to the mumsy procession of presidential wives was Nancy Reagan. She was 59 when she arrived in the White House but obsessed with fashion, greedy for its made-to-measure freebies, her extensive borrowing putting her in contravention of the Ethics in Government Act. Her defence was that she was promoting American fashion; but she needed couture more than the other way around. Her rake-thin Upper East Side look seemed a perfect embodiment of what Tom Wolfe called the “social x-rays”, ageing wives devouring girlish Oscar de la Renta dresses and minute portions of nothing much for lunch, teetering on candy-cane legs from charity dinners to Republican fundraisers. “Queen Nancy” was too stiff, too prissy-looking to inspire anyone but satirists of the “greed is good” bonanza championed by Ronnie.
Mrs Obama is more than a breath of fresh air: she will be a reason to stay cheerful as cynicism about her husband’s foreign policy inevitably creeps in. While Barack seeks to persuade that he is ushering in a new America — idealistic, young, modern — there is his wife helpfully looking all of those things in her emerald silk dress as the couple honoured Stevie Wonder recently. Her appearance won more column inches than her husband’s warning about the national debt. The more the media adores Michelle, the longer Barack’s honeymoon period.
These are tough times for fashion. The high street is losing shops, and in the UK, as in Europe and the US, the luxury market is shrinking and predicted to contract here by up to 7% in 2009. Mulberry’s sales sank 12% in the 10 weeks to December 6; even venerable Hermès has admitted that sales growth will fall “below expectations”. Public clotheshorses can help. Across the Channel, Carla Bruni-Sarkozy is thought to have earned Dior $2m in free advertising and sales by enchanting the world when she visited England last spring in her princess-perfect dove-grey ensemble. When she stepped from the plane in her Jackie-esque pillbox we swooned; she was restrained, exuding an all-purpose savoir-faire. Comparisons have been struck with Diana, but the people’s princess was angular and beaky, her hair never quite right, while Carla is a professional fashion plate.
And what of our own first lady? Sarah Brown looked chic in her purple beret from New Look at the state opening of parliament, but I’m not sure it would have staved off suicides in the depressed millinery industry. Brown is an experienced PR executive who understands the value of image, but like most women over a size 10, she isn’t comfortable with relentless scrutiny of her body. At the Elle Style Awards she looked stumped when asked about her silk jersey dress by Ben de Lisi. “A great British designer for a showcase of British talent,” she managed, sounding more like a trade minister than a fashion fan.
In France, while proud of Carla’s elegance, gossipy commentators sniggered at her attempt to look like a demure wifelet for the British royal family: Bruni, the former man-eating rock chick? Who is she kidding? “She’s had so much work on that face,” meows a Paris fashion editor, “they’re calling her ‘la femme bionique’.” But then the French are thrilled that she beats other first ladies hands down. Doesn’t her treasure-trove of gifted or borrowed finery make her look out of touch with le peuple? Mais non! “She’s the first lady of the French republic. Chanel, Dior? whatever she wants she must be allowed to wear.”
What do we want from a leader’s wife? Glamour, fashion, va-va-voom? A sense that she understands the everyday concerns of the Primark shopper? Across the pond the standard to meet is Jackie Kennedy, a woman whose “response to life”, in the words of the historian Arthur M Schlesinger, “was aesthetic rather than intellectual or moralistic”. She was indifferent to politics, but her shell-pink Cassini gown nonetheless eased the path of a tense diplomacy in Vienna in 1961 by dazzling a reportedly beguiled Nikita Khrushchev. With Jackie the look was the story: where she vacationed, how she wallpapered the Oval Office, belted her trench coats, were all elevated into an ideal of American style. She was criticised by Pat Nixon for her overly Francophile love of Dior and Givenchy, which she promptly reined in, employing the former Hollywood designer Cassini to create her most spectacular gowns.
For designers, the chance to dress the leader’s wife is a God-given break.
Who had heard of the Thai-American designer Thakoon before he hit the Obama jackpot? The most bizarre reason I ever heard for hoping a political party wins a general election was in the 1980s; an upcoming British couturier was rhapsodising over Michael Heseltine’s elegant wife, Anne, and the “dream” of dressing her if she became chatelaine of No 10. Few first ladies have ever fitted the bill (or the bias-cut satin evening dress), of course, but the Chanel-gazelle Carla has the happy advantage of having modelled for a decade before alighting on another job that wins you lots of free clothes and the gasping appreciation of the masses.
Carla doesn’t make it easy for her global counterparts. Imagine the humiliation of being photographed next to her, of trying to fly the flag on one of those painful wives’ excursions, like kimono-folding for beginners (seriously), offered at the G8 summits, with Carla stealing the show.
Meanwhile, female politicians themselves are learning the value of looking the part. And the price of getting it wrong. When they swept to power on a tide of sensible red suits in 1997, I doubt if one Blair babe could have spelt — let alone owned a pair of heels by — Manolo Blahnik. And who would have expected them to? Their job was putting Tony’s “new dawn” into practice, not prancing around looking cutting-edge or sexy. Unlike the wives, these women are elected public servants, paid from the taxes of people struggling to afford a winter coat. How they look has been deemed unworthy of comment. Tessa Jowell always looks elegant (good cheekbones, rich husband); but Theresa May’s liking for leopard-print kitten heels became all there was to say about her. While Caroline Flint’s high boots and slit skirts just make her look as if she’s trying too hard, an effort rewarded with the 2007 prize for “second sexiest MP”. Ouch.
English politicas just aren’t that good at image, something that frustrates Alexandra Shulman, the editor of British Vogue. “You can’t get a politician into Vogue because there is a fear that being in fashion makes you frivolous,” she says. “In the US and France it’s more egalitarian; it’s fine for everyone to be interested in looking good.”
Sarkozy’s wife is not the only looker in his entourage. The sacking of Rachida Dati, the French justice minister, who has been promised a safe seat in the European parliament, was no surprise. Teetering back to work on stilettos just five days after giving birth didn’t look heroic, it looked odd and a bit desperate. The woman Sarkozy once called “ma beurette” (my little Arab girl) was too sultry for her own good, too close to the boss and his ex-wife Cécilia, for Carla’s comfort. Women in French political life have always sought to be well turned out (Simone de Beauvoir was the pin-up of Les Deux Magots, after all), but Dati went too far. Did the citizens of the fifth republic really want the minister charged with rationalising France’s archaic courts appearing in Paris Match in kinky boots to chat about her love of Dior and Chanel?
Dati has risen higher than any other French North African woman; her personal allure has no doubt helped, but her attention to image has equally undermined her credibility. After Dati was caught on camera filing her nails at a Paris city council meeting and a Socialist MP joked about her “unbearable lightness”, the pencil skirts and high heels that got her noticed seemed ready to bury her, the definitive fashion victim.
The job of first lady (of which she maybe once dreamt) might have suited her better: more top-class swanning, less boring work. In general, though, politicians don’t marry high-maintenance mannequins. If they are lucky enough to net a beauty, she does well — in England at least — to tread carefully. Michael Howard’s wife, Sandra, a former model, understood perfectly that beauty can unhelpfully divide a political wife from the voters she needs to like her. When she announced that her dress for the Conservatives’ 2004 winter ball was a £75 Monsoon number, the nation applauded. For the French it would have been an inexplicable dereliction of duty, for their couture houses a missed marketing opportunity. Had things turned out differently at the 2005 election, Sandra would have taken her low-key glamour with her to No 10 to powerful effect. Samantha Cameron is similarly clever about democratic dressing, always on-trend but also in touch. Though she sells ludicrously expensive leather goods as creative director of Smythson, she likes to be known as a champion of the high street, wearing French Connection, Reiss and Topshop. Should she be enthroned next year, we can count on Sam to look the part.
That, indeed, will be her strength; and though she is thought to have “strong views” on certain issues, one doesn’t imagine she will scare the civil servants with her hidden policy agenda.
Co-ordinating a wardrobe, paying attention to proportion and colour, matching your scarf to your husband’s tie, all takes time, thought and energy. Yes, stylists, hairdressers and make-up artists can be hired, but unless your heart is in it, it will eventually show.
The times are unkind to political frock horrors like Cherie Blair: who cared if Mary Wilson looked provincial, or if No 10’s first working wife, Audrey Callaghan, cared more about her work on London county council than hats? Just before the 1997 Labour landslide, when the tabloids had begun their Cherie-baiting, John and Norma Major were on a train flicking through the papers. “Well,” declared the gracious Norma, herself panned for wearing the same royal-blue suit too often (ie, twice). “I think she looks perfectly lovely in her jumpers.” Somehow I knew then that Cherie’s knitwear would be the sport of the nation for a decade; as it turned out, the least of the poor woman’s problems would be getting dressed.
When Sarah Brown was snapped on holiday in Suffolk last summer in a navy Jaeger shift and a baggy old cardi, English women didn’t recoil in horreur. We probably sympathised, felt a vague sense that she was one of us, an identification worth more votes than goggling at her perfection. When she stole the show at last year’s Labour conference, introducing her husband with wifely pride, her Graeme Black skirt and jumper didn’t look exactly chic, but they looked unassuming, down to earth. And her trooper-like canvassing at the by-election in Glenrothes last November would not have worked so well — or at all — in a high-gloss package.
The truth is, it’s different here. In France and the US, the first lady is a political force, her status exalted, her celebrity extreme, her influence in spreading the creed of globalisation or of patriotic fashion-shopping — depending on the economic cycle — not to be underestimated. Here she is increasingly assumed to be a role model, but nobody is clear for what. Samantha Cameron might be young and pretty enough to influence younger women’s fashion choices, to promote a charity or two, but what will her example inspire them to do with their lives? Work in fashion, be a yummy mummy, marry a rich man? Nothing wrong with any of that. But it is her husband’s colleagues, rather than his wife, who could really help raise the aspirations of a celebrity-obsessed generation of girls.
You can see the need for fashion figureheads in a recession; what’s new is the idea that they might come from the House of Commons, a refuge for the defiantly uncoiffed, where Ann Widdecombe and Gwyneth Dunwoody looked absolutely fine, and Betty Boothroyd was considered rather racy for her weekly wash-and-set.
To the English, glamorous public servants are an alien concept. Kate Moss might have resurrected the pixie boot; Princess Diana might have launched a thousand galleon wedding gowns; but did anyone ever aspire to looking like Caroline Spelman or Ruth Kelly, even after her makeover? And yet maybe fashion’s role models do need to sober up with the times: the lunatic spending of model celebs, Wags and former Spice Girls seems grotesque as pensions crumble. The “must-have” beaver-skin thigh boots? Oh, go away.
“If we want to raise a generation of young women who don’t just want to be Wags and pop stars,” says Alexandra Shulman, “we’ve got to give them some glamorous role models, women looking great while doing serious things in the world.” She’s right. How amazing it would be to see the women of Westminster looking all polished and sharp for once. And how quickly would we begin, with the ingrained resentment of our chippy old nation, accusing them of letting down the staid-but-steadfast reputation of British politics with the wayward frivolity of owning something half-decent to wear? Or of being corrupt because they had accepted a designer discount or two? Whatever Michelle and Carla might do for their nations with their patriotic dressing, we sadly can’t expect our first ladies or our politicians to save our fashion industry, or inspire British teenagers with their workaday glamour. For the foreseeable future, at least, we’ve made invisibility a far safer option.
March 15, 2009
Why doesn't the UK have a Michelle Obama?
Not since Jackie Kennedy has the White House had a style icon in residence. As Michelle Obama slips into the role of political pin-up, with designers fawning at her feet, Lesley White asks why No 10 can’t produce its own first lady of fashion
First Lady Michelle Obama during the Midatlantic Regional Inaugural Ball at the Washington Convention Center in Washington, DC, January 20, 2009.
They say that politics is show business for the ugly, but sometimes it’s just plain showbiz. When Michelle Obama appeared on the cover of the March issue of American Vogue, sleek as oiled mink in her magenta Jason Wu dress, the first lady was defying one of fashion’s most stubborn stereotypes. The publishing industry’s unofficial position when challenged on why more ethnic models don’t make the covers has been that black women don’t sell glossy magazines. Naomi Campbell and Iman were cover stars in their day, of course, but in general, café au lait is as dusky as the handmaidens of high fashion get, with the Sudanese model Alek Wek the ebony-skinned exception. And it is not simply tradition that shot Michelle onto the coveted front page — after Hillary Clinton, she is only the second presidential wife to be accorded the honour. It is more that fashion is minded to crown its new saviour. It owes her. Or at least it hopes it will.
In January, The New York Times ran a story entitled US Fashion’s One-Woman Bailout? Not to put the woman under pressure, but it seems she is an integral part of her husband’s $800 billion economic rescue mission. So far she has appeared in a tasteful array of outfits: charming in a floral Thakoon Panichgul dress when Barack won the Democratic nomination, dazzling on election night in Narciso Rodriguez’s red-and-black ombré dress, resplendent at the swearing-in in Isabel Toledo’s “cloth of gold” dress and coat. Then there were the 10 inaugural balls, starring Jason Wu’s sparkling ivory one-shoulder gown.
Washington’s new star is both fêted and burdened, a one-woman stimulus package to get a nation spending again. “There’s no doubt that a style-icon first lady sells clothes,” says Averyl Oates, director of buying at Harvey Nichols. “Look at Jackie Onassis and Princess Diana. The confidence and affirmation of a woman in power wearing a designer can catapult them to stardom.” In short, Michelle is her countrywomen’s commander-in-shift, of whom the expectations are vast.
And her remit goes further. With every picture she’s putting middle-aged women on the fashion map. And black women on the glamour spreads. And mothers in a new sassy spotlight. Oh, and curtailing anorexia in the process: each time she beams from a glossy, the broader broad wins the day. Last year, for the second time, Mrs O made Vanity Fair’s International Best Dressed List, an accolade that might have had more to do with cultivating friends in high places than her genius with accessories. But who cares when the cash tills are ringing? Her outfits, when available, have sold out. She is also careful to dress herself and her daughters from the American classic outfitters Gap and J Crew — nobody wants to looks snooty around the new Camelot. After the family sported bits and bobs from J Crew over the inaugural weekend, the company’s shares rose 11%. Nobody loves telling the world how much (or little) their dresses cost more than the canny recessionista Michelle.
But does this practical, outspoken lawyer, who was educated at Harvard and marched for racial equality, want to be the new Jackie Kennedy, adored for her darling dresses? While the fashion press twitter on about frocks, she talks of having a “platform”, by which (to the chagrin of Christian Louboutin) she doesn’t mean an elevated sole, but a place from which to address the nation about what matters to her. Most relevant in depressed times, perhaps, is her championing of the national volunteering programme Renew America Together. Her approach to the job is a sleeves-rolled-up realism, with straight talk about family values and social justice, far closer to home than the apolitical causes embraced by most high-profile wives, more Eleanor Roosevelt mothering the nation through austerity than Princess Di adorned with posh frocks and needy babies.
In our brief love affair with Michelle O she has taken the trouble to wear nice clothes, but she hasn’t looked particularly enthralled by them. Actually, I suspect her of being a fashion fraud — pretending to care about it more than she really does. This is a working woman, pleasant-looking but not the great “beauty” mythologised by her fawning commentariat, a polished power dresser with stroppy hair and hips who, before her bizarre rocketing into the celebosphere, wouldn’t have given her fashion-ambassador potential a second thought (or even a first one).
But Michelle is wise to play the game. The first black woman to rule the White House needs to make a visual impact, to seduce and appeal to those (Republicans, Obama-sceptics, Hillary fans) who never wanted her there. Her Democrat predecessor Hillary Clinton looked trapped by those matching coats and dresses: her lightning-quick change into black trouser suits when she left the White House seemed even more of a blissful relief to her than getting her own political career. She didn’t find a place in the great American heart, which is where Michelle needs to be. “Lemongrass is the new black,” proclaimed the fashionistas after she chose the colour for a state occasion. You can imagine her silent groan as the prospect of, possibly, eight years of obsessive interest in her life and leggings hit her, but she knows what is required.
At 45, Michelle Obama is the most striking first lady since Jackie Kennedy. She’s not the youngest (Hillary Clinton was also 45 when she got the job), but it feels as if she is.
Since Jackie’s departure nearly 50 years ago, there’s been a style interregnum peopled by women with neocon dress sense, stymied when they did make an effort by their thick ankles and weight-bearing hips, but mostly by the all-too-obvious fact that they found fashion trivial (Hillary) or for a younger generation (Barbara Bush). Fragrant Laura did better than her frumpy mother-in-law: chided by her daughters for her “helmet hair”, she moved from half-hearted “clothes”
in her first term to “fashion” in her second, but she pioneered no new looks and her low-key makeover seemed more dutiful than fun.
The exception to the mumsy procession of presidential wives was Nancy Reagan. She was 59 when she arrived in the White House but obsessed with fashion, greedy for its made-to-measure freebies, her extensive borrowing putting her in contravention of the Ethics in Government Act. Her defence was that she was promoting American fashion; but she needed couture more than the other way around. Her rake-thin Upper East Side look seemed a perfect embodiment of what Tom Wolfe called the “social x-rays”, ageing wives devouring girlish Oscar de la Renta dresses and minute portions of nothing much for lunch, teetering on candy-cane legs from charity dinners to Republican fundraisers. “Queen Nancy” was too stiff, too prissy-looking to inspire anyone but satirists of the “greed is good” bonanza championed by Ronnie.
Mrs Obama is more than a breath of fresh air: she will be a reason to stay cheerful as cynicism about her husband’s foreign policy inevitably creeps in. While Barack seeks to persuade that he is ushering in a new America — idealistic, young, modern — there is his wife helpfully looking all of those things in her emerald silk dress as the couple honoured Stevie Wonder recently. Her appearance won more column inches than her husband’s warning about the national debt. The more the media adores Michelle, the longer Barack’s honeymoon period.
These are tough times for fashion. The high street is losing shops, and in the UK, as in Europe and the US, the luxury market is shrinking and predicted to contract here by up to 7% in 2009. Mulberry’s sales sank 12% in the 10 weeks to December 6; even venerable Hermès has admitted that sales growth will fall “below expectations”. Public clotheshorses can help. Across the Channel, Carla Bruni-Sarkozy is thought to have earned Dior $2m in free advertising and sales by enchanting the world when she visited England last spring in her princess-perfect dove-grey ensemble. When she stepped from the plane in her Jackie-esque pillbox we swooned; she was restrained, exuding an all-purpose savoir-faire. Comparisons have been struck with Diana, but the people’s princess was angular and beaky, her hair never quite right, while Carla is a professional fashion plate.
And what of our own first lady? Sarah Brown looked chic in her purple beret from New Look at the state opening of parliament, but I’m not sure it would have staved off suicides in the depressed millinery industry. Brown is an experienced PR executive who understands the value of image, but like most women over a size 10, she isn’t comfortable with relentless scrutiny of her body. At the Elle Style Awards she looked stumped when asked about her silk jersey dress by Ben de Lisi. “A great British designer for a showcase of British talent,” she managed, sounding more like a trade minister than a fashion fan.
In France, while proud of Carla’s elegance, gossipy commentators sniggered at her attempt to look like a demure wifelet for the British royal family: Bruni, the former man-eating rock chick? Who is she kidding? “She’s had so much work on that face,” meows a Paris fashion editor, “they’re calling her ‘la femme bionique’.” But then the French are thrilled that she beats other first ladies hands down. Doesn’t her treasure-trove of gifted or borrowed finery make her look out of touch with le peuple? Mais non! “She’s the first lady of the French republic. Chanel, Dior? whatever she wants she must be allowed to wear.”
What do we want from a leader’s wife? Glamour, fashion, va-va-voom? A sense that she understands the everyday concerns of the Primark shopper? Across the pond the standard to meet is Jackie Kennedy, a woman whose “response to life”, in the words of the historian Arthur M Schlesinger, “was aesthetic rather than intellectual or moralistic”. She was indifferent to politics, but her shell-pink Cassini gown nonetheless eased the path of a tense diplomacy in Vienna in 1961 by dazzling a reportedly beguiled Nikita Khrushchev. With Jackie the look was the story: where she vacationed, how she wallpapered the Oval Office, belted her trench coats, were all elevated into an ideal of American style. She was criticised by Pat Nixon for her overly Francophile love of Dior and Givenchy, which she promptly reined in, employing the former Hollywood designer Cassini to create her most spectacular gowns.
For designers, the chance to dress the leader’s wife is a God-given break.
Who had heard of the Thai-American designer Thakoon before he hit the Obama jackpot? The most bizarre reason I ever heard for hoping a political party wins a general election was in the 1980s; an upcoming British couturier was rhapsodising over Michael Heseltine’s elegant wife, Anne, and the “dream” of dressing her if she became chatelaine of No 10. Few first ladies have ever fitted the bill (or the bias-cut satin evening dress), of course, but the Chanel-gazelle Carla has the happy advantage of having modelled for a decade before alighting on another job that wins you lots of free clothes and the gasping appreciation of the masses.
Carla doesn’t make it easy for her global counterparts. Imagine the humiliation of being photographed next to her, of trying to fly the flag on one of those painful wives’ excursions, like kimono-folding for beginners (seriously), offered at the G8 summits, with Carla stealing the show.
Meanwhile, female politicians themselves are learning the value of looking the part. And the price of getting it wrong. When they swept to power on a tide of sensible red suits in 1997, I doubt if one Blair babe could have spelt — let alone owned a pair of heels by — Manolo Blahnik. And who would have expected them to? Their job was putting Tony’s “new dawn” into practice, not prancing around looking cutting-edge or sexy. Unlike the wives, these women are elected public servants, paid from the taxes of people struggling to afford a winter coat. How they look has been deemed unworthy of comment. Tessa Jowell always looks elegant (good cheekbones, rich husband); but Theresa May’s liking for leopard-print kitten heels became all there was to say about her. While Caroline Flint’s high boots and slit skirts just make her look as if she’s trying too hard, an effort rewarded with the 2007 prize for “second sexiest MP”. Ouch.
English politicas just aren’t that good at image, something that frustrates Alexandra Shulman, the editor of British Vogue. “You can’t get a politician into Vogue because there is a fear that being in fashion makes you frivolous,” she says. “In the US and France it’s more egalitarian; it’s fine for everyone to be interested in looking good.”
Sarkozy’s wife is not the only looker in his entourage. The sacking of Rachida Dati, the French justice minister, who has been promised a safe seat in the European parliament, was no surprise. Teetering back to work on stilettos just five days after giving birth didn’t look heroic, it looked odd and a bit desperate. The woman Sarkozy once called “ma beurette” (my little Arab girl) was too sultry for her own good, too close to the boss and his ex-wife Cécilia, for Carla’s comfort. Women in French political life have always sought to be well turned out (Simone de Beauvoir was the pin-up of Les Deux Magots, after all), but Dati went too far. Did the citizens of the fifth republic really want the minister charged with rationalising France’s archaic courts appearing in Paris Match in kinky boots to chat about her love of Dior and Chanel?
Dati has risen higher than any other French North African woman; her personal allure has no doubt helped, but her attention to image has equally undermined her credibility. After Dati was caught on camera filing her nails at a Paris city council meeting and a Socialist MP joked about her “unbearable lightness”, the pencil skirts and high heels that got her noticed seemed ready to bury her, the definitive fashion victim.
The job of first lady (of which she maybe once dreamt) might have suited her better: more top-class swanning, less boring work. In general, though, politicians don’t marry high-maintenance mannequins. If they are lucky enough to net a beauty, she does well — in England at least — to tread carefully. Michael Howard’s wife, Sandra, a former model, understood perfectly that beauty can unhelpfully divide a political wife from the voters she needs to like her. When she announced that her dress for the Conservatives’ 2004 winter ball was a £75 Monsoon number, the nation applauded. For the French it would have been an inexplicable dereliction of duty, for their couture houses a missed marketing opportunity. Had things turned out differently at the 2005 election, Sandra would have taken her low-key glamour with her to No 10 to powerful effect. Samantha Cameron is similarly clever about democratic dressing, always on-trend but also in touch. Though she sells ludicrously expensive leather goods as creative director of Smythson, she likes to be known as a champion of the high street, wearing French Connection, Reiss and Topshop. Should she be enthroned next year, we can count on Sam to look the part.
That, indeed, will be her strength; and though she is thought to have “strong views” on certain issues, one doesn’t imagine she will scare the civil servants with her hidden policy agenda.
Co-ordinating a wardrobe, paying attention to proportion and colour, matching your scarf to your husband’s tie, all takes time, thought and energy. Yes, stylists, hairdressers and make-up artists can be hired, but unless your heart is in it, it will eventually show.
The times are unkind to political frock horrors like Cherie Blair: who cared if Mary Wilson looked provincial, or if No 10’s first working wife, Audrey Callaghan, cared more about her work on London county council than hats? Just before the 1997 Labour landslide, when the tabloids had begun their Cherie-baiting, John and Norma Major were on a train flicking through the papers. “Well,” declared the gracious Norma, herself panned for wearing the same royal-blue suit too often (ie, twice). “I think she looks perfectly lovely in her jumpers.” Somehow I knew then that Cherie’s knitwear would be the sport of the nation for a decade; as it turned out, the least of the poor woman’s problems would be getting dressed.
When Sarah Brown was snapped on holiday in Suffolk last summer in a navy Jaeger shift and a baggy old cardi, English women didn’t recoil in horreur. We probably sympathised, felt a vague sense that she was one of us, an identification worth more votes than goggling at her perfection. When she stole the show at last year’s Labour conference, introducing her husband with wifely pride, her Graeme Black skirt and jumper didn’t look exactly chic, but they looked unassuming, down to earth. And her trooper-like canvassing at the by-election in Glenrothes last November would not have worked so well — or at all — in a high-gloss package.
The truth is, it’s different here. In France and the US, the first lady is a political force, her status exalted, her celebrity extreme, her influence in spreading the creed of globalisation or of patriotic fashion-shopping — depending on the economic cycle — not to be underestimated. Here she is increasingly assumed to be a role model, but nobody is clear for what. Samantha Cameron might be young and pretty enough to influence younger women’s fashion choices, to promote a charity or two, but what will her example inspire them to do with their lives? Work in fashion, be a yummy mummy, marry a rich man? Nothing wrong with any of that. But it is her husband’s colleagues, rather than his wife, who could really help raise the aspirations of a celebrity-obsessed generation of girls.
You can see the need for fashion figureheads in a recession; what’s new is the idea that they might come from the House of Commons, a refuge for the defiantly uncoiffed, where Ann Widdecombe and Gwyneth Dunwoody looked absolutely fine, and Betty Boothroyd was considered rather racy for her weekly wash-and-set.
To the English, glamorous public servants are an alien concept. Kate Moss might have resurrected the pixie boot; Princess Diana might have launched a thousand galleon wedding gowns; but did anyone ever aspire to looking like Caroline Spelman or Ruth Kelly, even after her makeover? And yet maybe fashion’s role models do need to sober up with the times: the lunatic spending of model celebs, Wags and former Spice Girls seems grotesque as pensions crumble. The “must-have” beaver-skin thigh boots? Oh, go away.
“If we want to raise a generation of young women who don’t just want to be Wags and pop stars,” says Alexandra Shulman, “we’ve got to give them some glamorous role models, women looking great while doing serious things in the world.” She’s right. How amazing it would be to see the women of Westminster looking all polished and sharp for once. And how quickly would we begin, with the ingrained resentment of our chippy old nation, accusing them of letting down the staid-but-steadfast reputation of British politics with the wayward frivolity of owning something half-decent to wear? Or of being corrupt because they had accepted a designer discount or two? Whatever Michelle and Carla might do for their nations with their patriotic dressing, we sadly can’t expect our first ladies or our politicians to save our fashion industry, or inspire British teenagers with their workaday glamour. For the foreseeable future, at least, we’ve made invisibility a far safer option.
Getty Trust to slash budget as investments tumble
Getty Trust to slash budget as investments tumble
Los Angeles Times
By Mike Boehm
March 16, 2009
The J. Paul Getty Trust, envied as the economic Goliath of the museum world, is slashing its operating budget nearly 25% for the coming fiscal year, an emergency response to investment losses that have totaled $1.5 billion since July and nearly $2 billion since mid-2007.
President James Wood said the financial stability of the Getty, the world's richest arts institution, could "fall off a huge cliff" if it delayed drastic cuts and hard times continued.
The Getty relies almost exclusively on investment earnings to cover expenses for its two Los Angeles art museums as well as the research, art conservation and grant-making operations that extend the trust's reach around the world.
Its portfolio dropped 25% during the last half of 2008, from $6 billion to $4.5 billion. That still dwarfs the $2.1-billion endowment of New York's Metropolitan Museum of Art, which announced plans Thursday to lay off 10% of its workforce, partly because of an endowment loss approaching 28%.
The reductions at the Getty should focus on operations that can easily expand again, Wood said Friday. Cuts may well be in store for temporary exhibitions, which have totaled more than 20 a year. The Getty may also defer buying new works for its collections of ancient art, European art from before the 20th century, illuminated manuscripts and photography.
Wood said the core operating budget for the fiscal year starting July 1 would be $216 million, compared with the current year's budget of $284 million.
The Getty's financial statements show that overall spending has reached as high as $339 million in recent years, when added costs such as interest on $627 million in construction and art acquisition bonds are factored in.
The Getty Trust was established as an operating foundation in 1976 with a $700-million bequest (the equivalent of $2.6 billion today) from oil magnate J. Paul Getty. Since then, it barely has lifted a fundraising finger while covering 93% or more of expenses with its portfolio's earnings.
Its diminished nest egg is now about where it stood in 2002, at the height of the last recession. Then, however, the trust was operating only one site, the hilltop Getty Center in Brentwood, where the Getty Museum is the attraction. In 2006, the renovated Getty Villa reopened near Malibu.
Together, the museums drew 1.6 million visitors in 2008. Admission is free, although parking costs $10.
Wood said the Getty's leaders and trustees would decide by the end of May what reductions to make. Although declining to specify possible cuts, he said that maintaining free admission was "a terribly important priority" because charging would be "a nasty socioeconomic curve" to throw to the less-affluent visitors the Getty aims to include.
Also, Wood said, he is against the wholesale lopping off of any of the trust's nonmuseum limbs -- the scholarship, conservation and grant programs that he said magnify the Getty's global influence in ways not available to other art institutions.
It would be a mistake "to simplistically say we're going to stop doing that" and just run the museums, he said during an interview in his sparsely furnished office, which commands a panoramic view of the city. "I don't think that would be the best thing for the Getty or Los Angeles, because it's one of the many things that makes L.A. a cosmopolitan, exciting place."
The Getty's biggest expense by far is the combination of salaries and benefits, which totaled $124.6 million in 2006-07, according to its most recent available federal tax return.
Wood said it was an "absolute priority" to keep staffers who have special expertise, including curators, researchers, art conservators and even the gardeners who tend the spectacular grounds at the Getty Center and the Villa. But in a December memo about the investment losses, he warned employees that staff cuts were coming.
In a separate interview, James Williams, the Getty's chief investment officer since 2002, said there was no plan to change the investment strategy the trust has pursued since the middle of this decade, betting heavily on "alternative investments" such as hedge funds, private partnerships, raw materials and "distressed" companies trying to emerge from Chapter 11 reorganization. Williams said the Getty's approach, which de-emphasizes holdings in publicly traded stocks and bonds, was safer because it allows greater investment diversity.
The strategy is known as the endowment model or the Yale model, in deference to the university that pioneered it in the 1980s, reaping huge returns and begetting many imitators among universities and other nonprofit institutions that could afford to invest huge sums over a long term.
Williams said that over the last year and a half, the Getty had tried to minimize what he considered the approach's two pitfalls: investing in ventures that are loaded with debt and tying up too much money in assets that are hard to sell quickly.
The human factor in this unhappy numbers game is apparent at www.silencedogetty.blogspot.com, where nervous and sometimes angry Getty staffers have been venting anonymously since Feb. 21. "The frustration and fear was palpable" after a round of layoffs last spring, the blog's pseudonymous founder wrote then, and had intensified since December, when Wood issued his memo that further cuts were coming. Wood said Friday that the layoff of 47 workers then, plus the elimination of 77 vacant positions, wasn't done to save money but to "reallocate" resources after a yearlong examination of the trust's priorities.
Staffing now stands at 1,395 full-time and 101 part-time positions.
Wood said he empathized with the anxieties evident on the blog. "I'm anxious myself, to some degree, although we're on the right path, hard as it is." He said he was bothered by the blog's "innuendo that people don't dare ask questions or they would suffer for that. That is not the operation we run."
The blog has suggested alternatives to layoffs, including asking the 11 volunteer trustees to contribute money and cutting the pay of top executives.
Wood, at $1.11 million, and Williams, at $1.28 million, were last year's top earners, with seven others making from $397,000 to $906,000, according to documents posted on the Getty website in keeping with the trust's policy, adopted in the wake of a mid-decade scandal over improper spending, of being unusually open and detailed about its finances.
"Everything is on the table," Wood said of the blog's calls for lower executive salaries and a toll on board membership, but he added that the Getty's problem was too big to be solved by such "piecemeal" measures.
A respected art historian and museum director, Wood ran the Art Institute of Chicago from 1980 to 2004.
The Getty lured him out of retirement two years ago to bring a steadying hand to an institution that had been racked by back-to-back scandals.
In 2004 and 2005, morale sank as allegations surfaced about financial impropriety and cronyism under then-president Barry Munitz. Munitz was ousted early in 2006, and his departure was followed by extensive turnover on a board that had been widely seen as unresponsive and out of touch.
It wasn't until September 2007 that the Getty emerged from the second scandal -- its past acquisitions of looted antiquities -- by returning 40 objects to Italy.
In a prosecution that has moved forward at a sluggish pace, Marion True, the museum's former antiquities curator, remains charged by the Italian government with conspiring to acquire looted items.
mike.boehm @latimes.com
Los Angeles Times
By Mike Boehm
March 16, 2009
The J. Paul Getty Trust, envied as the economic Goliath of the museum world, is slashing its operating budget nearly 25% for the coming fiscal year, an emergency response to investment losses that have totaled $1.5 billion since July and nearly $2 billion since mid-2007.
President James Wood said the financial stability of the Getty, the world's richest arts institution, could "fall off a huge cliff" if it delayed drastic cuts and hard times continued.
The Getty relies almost exclusively on investment earnings to cover expenses for its two Los Angeles art museums as well as the research, art conservation and grant-making operations that extend the trust's reach around the world.
Its portfolio dropped 25% during the last half of 2008, from $6 billion to $4.5 billion. That still dwarfs the $2.1-billion endowment of New York's Metropolitan Museum of Art, which announced plans Thursday to lay off 10% of its workforce, partly because of an endowment loss approaching 28%.
The reductions at the Getty should focus on operations that can easily expand again, Wood said Friday. Cuts may well be in store for temporary exhibitions, which have totaled more than 20 a year. The Getty may also defer buying new works for its collections of ancient art, European art from before the 20th century, illuminated manuscripts and photography.
Wood said the core operating budget for the fiscal year starting July 1 would be $216 million, compared with the current year's budget of $284 million.
The Getty's financial statements show that overall spending has reached as high as $339 million in recent years, when added costs such as interest on $627 million in construction and art acquisition bonds are factored in.
The Getty Trust was established as an operating foundation in 1976 with a $700-million bequest (the equivalent of $2.6 billion today) from oil magnate J. Paul Getty. Since then, it barely has lifted a fundraising finger while covering 93% or more of expenses with its portfolio's earnings.
Its diminished nest egg is now about where it stood in 2002, at the height of the last recession. Then, however, the trust was operating only one site, the hilltop Getty Center in Brentwood, where the Getty Museum is the attraction. In 2006, the renovated Getty Villa reopened near Malibu.
Together, the museums drew 1.6 million visitors in 2008. Admission is free, although parking costs $10.
Wood said the Getty's leaders and trustees would decide by the end of May what reductions to make. Although declining to specify possible cuts, he said that maintaining free admission was "a terribly important priority" because charging would be "a nasty socioeconomic curve" to throw to the less-affluent visitors the Getty aims to include.
Also, Wood said, he is against the wholesale lopping off of any of the trust's nonmuseum limbs -- the scholarship, conservation and grant programs that he said magnify the Getty's global influence in ways not available to other art institutions.
It would be a mistake "to simplistically say we're going to stop doing that" and just run the museums, he said during an interview in his sparsely furnished office, which commands a panoramic view of the city. "I don't think that would be the best thing for the Getty or Los Angeles, because it's one of the many things that makes L.A. a cosmopolitan, exciting place."
The Getty's biggest expense by far is the combination of salaries and benefits, which totaled $124.6 million in 2006-07, according to its most recent available federal tax return.
Wood said it was an "absolute priority" to keep staffers who have special expertise, including curators, researchers, art conservators and even the gardeners who tend the spectacular grounds at the Getty Center and the Villa. But in a December memo about the investment losses, he warned employees that staff cuts were coming.
In a separate interview, James Williams, the Getty's chief investment officer since 2002, said there was no plan to change the investment strategy the trust has pursued since the middle of this decade, betting heavily on "alternative investments" such as hedge funds, private partnerships, raw materials and "distressed" companies trying to emerge from Chapter 11 reorganization. Williams said the Getty's approach, which de-emphasizes holdings in publicly traded stocks and bonds, was safer because it allows greater investment diversity.
The strategy is known as the endowment model or the Yale model, in deference to the university that pioneered it in the 1980s, reaping huge returns and begetting many imitators among universities and other nonprofit institutions that could afford to invest huge sums over a long term.
Williams said that over the last year and a half, the Getty had tried to minimize what he considered the approach's two pitfalls: investing in ventures that are loaded with debt and tying up too much money in assets that are hard to sell quickly.
The human factor in this unhappy numbers game is apparent at www.silencedogetty.blogspot.com, where nervous and sometimes angry Getty staffers have been venting anonymously since Feb. 21. "The frustration and fear was palpable" after a round of layoffs last spring, the blog's pseudonymous founder wrote then, and had intensified since December, when Wood issued his memo that further cuts were coming. Wood said Friday that the layoff of 47 workers then, plus the elimination of 77 vacant positions, wasn't done to save money but to "reallocate" resources after a yearlong examination of the trust's priorities.
Staffing now stands at 1,395 full-time and 101 part-time positions.
Wood said he empathized with the anxieties evident on the blog. "I'm anxious myself, to some degree, although we're on the right path, hard as it is." He said he was bothered by the blog's "innuendo that people don't dare ask questions or they would suffer for that. That is not the operation we run."
The blog has suggested alternatives to layoffs, including asking the 11 volunteer trustees to contribute money and cutting the pay of top executives.
Wood, at $1.11 million, and Williams, at $1.28 million, were last year's top earners, with seven others making from $397,000 to $906,000, according to documents posted on the Getty website in keeping with the trust's policy, adopted in the wake of a mid-decade scandal over improper spending, of being unusually open and detailed about its finances.
"Everything is on the table," Wood said of the blog's calls for lower executive salaries and a toll on board membership, but he added that the Getty's problem was too big to be solved by such "piecemeal" measures.
A respected art historian and museum director, Wood ran the Art Institute of Chicago from 1980 to 2004.
The Getty lured him out of retirement two years ago to bring a steadying hand to an institution that had been racked by back-to-back scandals.
In 2004 and 2005, morale sank as allegations surfaced about financial impropriety and cronyism under then-president Barry Munitz. Munitz was ousted early in 2006, and his departure was followed by extensive turnover on a board that had been widely seen as unresponsive and out of touch.
It wasn't until September 2007 that the Getty emerged from the second scandal -- its past acquisitions of looted antiquities -- by returning 40 objects to Italy.
In a prosecution that has moved forward at a sluggish pace, Marion True, the museum's former antiquities curator, remains charged by the Italian government with conspiring to acquire looted items.
mike.boehm @latimes.com
The Shadow of Depression- Samuelson
March 16, 2009
The Shadow of Depression
By Robert Samuelson
WASHINGTON -- We live in the shadow of the Great Depression. Americans' gloom does not reflect just 8.1 percent unemployment or the loss of $13 trillion worth of housing and stock market value since mid-2007. There is also an amorphous anxiety that we are falling into a deep economic ravine from which escape will be difficult. These worries may prove ill-founded. But until they do, they promote pessimism and the hoarding of cash, by consumers and companies alike, that further weaken the economy.
Our only frame of reference for this sort of breakdown is the Great Depression. Superficially, the comparison seems absurd. We are a long way from the 1930s, as Christina Romer, head of President Obama's Council of Economic Advisers, noted recently in a useful talk. Unemployment peaked at 25 percent in 1933. At its low point, the economy (gross domestic product) was down 25 percent from its 1929 high. So far, U.S. GDP has dropped only about 2 percent.
What's more, the Depression changed our thinking and institutions. The human misery of economic turmoil has diminished. "American workers (in the 1930s) had painfully few of the social safety nets that today help families," Romer said. Until 1935, there was no federal unemployment insurance. At last count, there were 32 million food stamp recipients and 49 million on Medicaid. These programs didn't exist in the 1930s.
Government also responds more quickly to slumps. Despite many New Deal programs, "fiscal policy" -- in effect, deficit spending -- was used only modestly in the 1930s, Romer argued. Some of Franklin Roosevelt's extra spending was offset by a tax increase enacted in Herbert Hoover's last year. The federal deficit went from 4.5 percent of GDP in 1933 to 5.9 percent in 1934, not a huge increase.
Contrast that with the present. In fiscal 2009, the budget deficit is projected at 12.3 percent of GDP, up from 3.2 percent in 2008. Some of the increase reflects "automatic stabilizers" (in downturns, government spending increases and taxes decrease); the rest stems from the massive "stimulus program." On top of this, the Federal Reserve has cut its overnight interest rate to about zero and is lending directly in markets where private investors have retreated, including housing.
Government's aggressive actions should reinforce some of the economy's normal mechanisms for recovery. As pent-up demand builds, so will the pressure for more spending. The repayment of loans, lowering debt burdens, sets the stage for more spending. Ditto for the runoff of surplus inventories.
So, are Depression analogies far-fetched, needlessly alarmist? Probably -- but not inevitably. Even some Depression scholars, who once dismissed the possibility of a repetition, are less confident.
"Unfortunately, the similarities (between then and now) are growing more striking every day," says economic historian Barry Eichengreen of the University of California at Berkeley. "I never thought I'd say that in my lifetime." Argues economist Gary Richardson of UC Irvine: "This is the first business downturn since the 1930s that looks like the 1930s."
One parallel is that it's worldwide. In the 1930s, the gold standard transmitted the crisis from country to country. Governments raised interest rates to protect their gold reserves. Credit tightened, production and trade suffered, unemployment rose. Now, global investors and banks transmit the crisis. If they suffer losses in one country, they may sell stocks and bonds in other markets to raise cash. Or as they "deleverage" -- reduce their own borrowings -- they may curtail lending and investing in many countries.
The consequences are the same. In the fourth quarter of 2008, global industrial production fell at a 20 percent annual rate from the third quarter, says the World Bank. International trade may "register its largest decline in 80 years." Developing countries need to borrow at least $270 billion; if they can't, their economies will slow and that will hurt the advanced countries that export to them. It's a vicious circle.
Just as in the 1930s, there's a global implosion of credit. What's also reminiscent of the Depression are quarrels over who's to blame and what should be done. The Obama administration wants bigger stimulus packages from Europe and Japan. Europeans have rebuffed the proposal. The United States has also proposed greater lending by the International Monetary Fund to relieve stresses on poorer countries. Disputes could fuel protectionism and economic nationalism.
What these confusing crosscurrents produce is defensiveness. No one knows how this epic struggle will end -- whether the forces pushing down the global economy will prevail over those trying to pull it up. Boom psychology gives way to bust psychology: The vague fear that something bad, call it a "depression" or whatever, is happening causes consumers and business managers to protect themselves by conserving their cash and slashing their spending. They hope for the best and prepare for the worst.
Copyright 2009, Washington Post Writers Group
The Shadow of Depression
By Robert Samuelson
WASHINGTON -- We live in the shadow of the Great Depression. Americans' gloom does not reflect just 8.1 percent unemployment or the loss of $13 trillion worth of housing and stock market value since mid-2007. There is also an amorphous anxiety that we are falling into a deep economic ravine from which escape will be difficult. These worries may prove ill-founded. But until they do, they promote pessimism and the hoarding of cash, by consumers and companies alike, that further weaken the economy.
Our only frame of reference for this sort of breakdown is the Great Depression. Superficially, the comparison seems absurd. We are a long way from the 1930s, as Christina Romer, head of President Obama's Council of Economic Advisers, noted recently in a useful talk. Unemployment peaked at 25 percent in 1933. At its low point, the economy (gross domestic product) was down 25 percent from its 1929 high. So far, U.S. GDP has dropped only about 2 percent.
What's more, the Depression changed our thinking and institutions. The human misery of economic turmoil has diminished. "American workers (in the 1930s) had painfully few of the social safety nets that today help families," Romer said. Until 1935, there was no federal unemployment insurance. At last count, there were 32 million food stamp recipients and 49 million on Medicaid. These programs didn't exist in the 1930s.
Government also responds more quickly to slumps. Despite many New Deal programs, "fiscal policy" -- in effect, deficit spending -- was used only modestly in the 1930s, Romer argued. Some of Franklin Roosevelt's extra spending was offset by a tax increase enacted in Herbert Hoover's last year. The federal deficit went from 4.5 percent of GDP in 1933 to 5.9 percent in 1934, not a huge increase.
Contrast that with the present. In fiscal 2009, the budget deficit is projected at 12.3 percent of GDP, up from 3.2 percent in 2008. Some of the increase reflects "automatic stabilizers" (in downturns, government spending increases and taxes decrease); the rest stems from the massive "stimulus program." On top of this, the Federal Reserve has cut its overnight interest rate to about zero and is lending directly in markets where private investors have retreated, including housing.
Government's aggressive actions should reinforce some of the economy's normal mechanisms for recovery. As pent-up demand builds, so will the pressure for more spending. The repayment of loans, lowering debt burdens, sets the stage for more spending. Ditto for the runoff of surplus inventories.
So, are Depression analogies far-fetched, needlessly alarmist? Probably -- but not inevitably. Even some Depression scholars, who once dismissed the possibility of a repetition, are less confident.
"Unfortunately, the similarities (between then and now) are growing more striking every day," says economic historian Barry Eichengreen of the University of California at Berkeley. "I never thought I'd say that in my lifetime." Argues economist Gary Richardson of UC Irvine: "This is the first business downturn since the 1930s that looks like the 1930s."
One parallel is that it's worldwide. In the 1930s, the gold standard transmitted the crisis from country to country. Governments raised interest rates to protect their gold reserves. Credit tightened, production and trade suffered, unemployment rose. Now, global investors and banks transmit the crisis. If they suffer losses in one country, they may sell stocks and bonds in other markets to raise cash. Or as they "deleverage" -- reduce their own borrowings -- they may curtail lending and investing in many countries.
The consequences are the same. In the fourth quarter of 2008, global industrial production fell at a 20 percent annual rate from the third quarter, says the World Bank. International trade may "register its largest decline in 80 years." Developing countries need to borrow at least $270 billion; if they can't, their economies will slow and that will hurt the advanced countries that export to them. It's a vicious circle.
Just as in the 1930s, there's a global implosion of credit. What's also reminiscent of the Depression are quarrels over who's to blame and what should be done. The Obama administration wants bigger stimulus packages from Europe and Japan. Europeans have rebuffed the proposal. The United States has also proposed greater lending by the International Monetary Fund to relieve stresses on poorer countries. Disputes could fuel protectionism and economic nationalism.
What these confusing crosscurrents produce is defensiveness. No one knows how this epic struggle will end -- whether the forces pushing down the global economy will prevail over those trying to pull it up. Boom psychology gives way to bust psychology: The vague fear that something bad, call it a "depression" or whatever, is happening causes consumers and business managers to protect themselves by conserving their cash and slashing their spending. They hope for the best and prepare for the worst.
Copyright 2009, Washington Post Writers Group
Sunday, March 15, 2009
Ben Bernanke on 60 Minutes- Complete Transcript March 15, 2009
March 15, 2009
Interview with Ben Bernanke
60 Minutes
PELLEY Mr. Chairman, I'm going to start with a question that everyone wants me to ask: When does this end?
BERNANKE: It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis. We've seen some progress in the financial markets, absolutely. But until we get that stabilized and working normally, we're not going to see recovery. But we do have a plan. We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time.
PELLEY you think the recession is going to end this year?
BERNANKE In the sense that this decline will begin to moderate and we'll begin to see leveling off. We won't be back to full employment. But we will see, I hope, the end of these declines that have been so-- so strong in a last couple of quarters.
PELLEY: But you wouldn't say at this point that we're out of the woods?
BERNANKE No. I think the key issue is the banking system and the financial system.
PELLEY Unemployment, as we sit here, is about 8.1 percent. I wonder, do you expect double digit unemployment?
BERNANKE Well, it's hard to forecast exactly where we're going. Unemployment is rising. Job losses are still-- still very severe. And no doubt, the unemployment rate's going to go-- go higher than it is. But I think, again, that if we do succeed in stabilizing the financial system, that we'll begin to see a-- a slower pace of decline, and eventually, a stabilization that will set the basis for a-- a recovery.
PELLEY You seem to be saying that we're not heading into a new American depression?
BERNANKE I think we've averted that-- that risk.I think we've gotten past that and now the problem is to get the thing working properly again.
BEN BERNANKE, AGE 55, HAS BEEN CHAIRMAN OF THE FEDERAL RESERVE BOARD SINCE 2006. FOR OUR INTERVIEW, HE OPENED UP THE FED HEADQUARTERS, RARELY SEEN BY THE PUBLIC. IT'S A MONUMENTAL BUILDING ALONG THE NATIONAL MALL. CONSTRUCTION STARTED IN 1935 IN THE DEPTHS OF THE GREAT DEPRESSION.
PELLEY You know Mr Chairman I think the Federal Reserve, for most people, is a mystery.
BERNANKE Well is an institution that people don't hear so much about but it's a very Important one. It manages monetary policy for the country. It's one of the main tools we have for stabilizing our economy and keeping prices stable.
PELLEY when was it founded?
BERNANKE The Fed was created by Congress in 1913. And it's original purpose was to deal with financial panics which is what we're doing right now
BERNANKE'S CRISIS STARTED IN 2007 WITH THE MORTGAGE MELT DOWN. LENDERS BEGAN TO FAIL. BERNANKE CUT INTEREST RATES REPEATEDLY. IN 2008, THE FED STOPPED THE COLLAPSE OF BEAR STEARNS BY ARRANGING A SALE TO ANOTHER FIRM. BUT THEN CAME THE END OF WALL STREET AS WE KNEW IT. MORTGAGE GIANTS FANNY MAE AND FREDDIE MAC WERE SEIZED BY THE GOVERNMENT. ON SEPTEMBER 14TH, MERRILL LYNCH WAS SOLD IN DISTRESS. THE NEXT DAY 158 YEAR OLD LEHMAN BROTHERS FAILED.
PELLEY You didn't rescue Lehman Brothers. It set off a worldwide panic when it went bankrupt. And I wonder, looking back, whether you think that was a mistake.
BERNANKE there were many people who said, "Let them fail." You know, it's not a problem. The markets will take care of it. And I-- I think I knew better than that. And Lehman proved that you cannot let a large internationally active firm fail in the middle of a financial crisis. Now was it a mistake? It wasn't a mistake for the following reason we didn't have the option we didn't have the tools -- the Federal Reserve cannot put capital into an institution. All we can do is make loans against collateral.
THE DAY AFTER LEHMAN, BERNANKE'S FED DID SOMETHING ASTOUNDING. IT LOANED 85 BILLION DOLLARS TO A COMPANY THAT WASN'T A BANK AT ALL-- AMERICAN INTERNATIONAL GROUP, THE GLOBAL INSURANCE GIANT THAT WAS ALSO INVOLVED IN BACKING RISKY MORTGAGE INVESTMENTS. BERNANKE SAYS, UNLIKE LEHMAN, THE FED COULD MAKE THE LOAN BASED ON GOOD COLLATERAL IN AIG'S PORTFOLIO.
PELLEY There have now been four rescues of AIG, for about $160 billion. Why is that necessary?
BERNANKE Let me just first say that-- of all the events and all of the things we've done in the last 18 months, the-- the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG. Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a-- we had a situation where the failure of that company would have brought down the financial system.
PELLEY You say it makes you angry? What do you mean by that?
BERNANKE It makes me angry. I slammed the phone more than a few times on discussing AIG. It's-- it's just absolutely-- I understand why the American people are angry. It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets-- that was operating out of the sight of regulators, but which we have no choice but the stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy.
BY SEPTEMBER BERNANKE AND FORMER TREASURY SECRETARY HANK PAULSON WENT TO CAPITOL HILL TO URGE A MASSIVE BAILOUT OF THE BANKING SYSTEM.
BERNANKE At that period, I felt we were pretty close to a global financial meltdown.
PELLEY how much danger was there? How close a call?
BERNANKE It was very close. It was very close. The Congress passed the bill that gave Treasury the right to put capital into the banks-- in the first week of October. And it was in the second week of October that the crisis reached its peak.If we had not had those powers, we could have had a much, much worse outcome. So it was a very dangerous situation.
PELLEY Was anyone on Capitol Hill skeptical? Did they push back at all--you know, Mr. Chairman, it's probably not quite that bad?
BERNANKE: Well, I do remember one conversation I had where I was addressing a-- a caucus of-- of congressmen. And a congressman said to me-- he said, "Mr. Chairman, you know, I'm talking to bankers in my town. I'm talking to shopkeepers in my town. And they say things are normal. Nothing's going on. We don't-- we don't see any problem." And I turned to him and I said, "You will.”
THAT SECOND WEEK OF OCTOBER, THE DOW FELL 18 PERCENT. ITS WORST WEEK IN HISTORY.
IN THE MIDST OF THE CRISIS, BERNANKE HAD FREEDOM TO ACT IMMEDIATELY, HE DOESN'T NEED PRIOR PERMISSION FROM CONGRESS OR THE PRESIDENT. WHILE THEY DEBATED ON CAPITOL HILL, BERNANKE CUT INTEREST RATES NEARLY TO ZERO THEN HE USED DEPRESSION ERA EMERGENCY POWERS TO LAUNCH A DOZEN RESCUE PROGRAMS OF HIS OWN. THERE WAS SUPPORT FOR MONEY MARKET FUNDS, MORTGAGES, SHORT TERM LENDING TO SMALL BUSINESS, AND SUPPORT FOR AUTO LOANS, STUDENT LOANS AND SMALL BUSINESS LOANS. --COMMITMENTS OF A TRILLION DOLLARS�"DOUBLING THE SIZE OF THE FED'S BALANCE SHEET.
PELLEY Is that tax money that the Fed is spending?
BERNANKE It's not tax money. the banks have-- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it's much more akin to printing money than it is to borrowing.
PELLEY You've been printing money?
BERNANKE Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. when the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.
HE'S NOT KIDDING ABOUT PRINTING MONEY. THE FED ISSUES U.S. CURRENCY. THAT'S WHY IT SAYS FEDERAL RESERVE NOTE ON ALL THE BILLS IN YOUR WALLET. THIS IS THE BUREAU OF ENGRAVING AND PRINTING JUST A FEW BLOCKS FROM BERNANKE'S OFFICE. THE FED'S MANDATE FROM CONGRESS IS TO PUT ENOUGH MONEY IN THE SYSTEM FOR MAXIMUM EMPLOYMENT, BUT NOT SO MUCH THAT IT SETS OFF INFLATION. THE FED ACTUALLY PAYS FOR ITSELF AND RETURNS BILLIONS IN PROFITS TO THE TREASURY.
IN A SENSE BERNANKE HAS BEEN PREPARING FOR THIS EMERGENCY HIS WHOLE PROFESSIONAL LIFE. HE GOT A PhD IN ECONOMICS FROM M.I.T. HE CHAIRED THE ECONOMICS DEPARTMENT AT PRINCETON AND HIS SPECIALTY IS THE GREAT DEPRESSION. HE'S AMONG MANY ECONOMISTS WHO NOW BELIEVE IT WAS THE FEDERAL RESERVE ITSELF THAT HELPED TURN A RECESSION IN 1929 INTO A GLOBAL CALAMITY.
BERNANKE: they made two mistakes, basically. One was they let the money supply contract very sharply. Prices fell. Deflation. So monetary policy was, in fact, very contractionary. Very tight-- during that period. And then the second mistake they made was they let the banks fail. They didn't make any strong effort to prevent the failure of thousands of banks.
BERNANKE TOLD US WE WERE CLOSE TO A SECOND DEPRESSION AND HE IS DETERMINED TO NOT LET THE MAJOR BANKS FAIL ON HIS WATCH.
PELLEY: One of the things that I think many people watching this interview don't understand, is why there are multiple bailouts, four bailouts of AIG, three bailouts of Citigroup. There is a sense that this is a band-aid approach, that we're not getting to the root of the problem.
BERNANKE: Well, part of the issue is that-- you know, the economy has gotten a good bit worse. You know, the first part of the crisis was subprime and other assets that were toxic. Now, we're in a second phase, which is that the economy is very weak, So the economy's weakness has meant that some of the initial attempts to stabilize the banks haven't been enough, and we've had to do more.
PELLEY You know, Mr. Chairman, there are so many people outside this building, across this country, who say, "To hell with them. They made bad bets. the wages of failure on Wall Street should be failure."
BERNANKE Let me give you an analogy, if I might. If you have a neighbor, who smokes in bed. And he's a risk to everybody. If suppose he sets fire to his-- to his house, and you might say to yourself, you know, "I'm not going to call the fire department. Let his house burn down. It's fine with me." But then, of course, but what if your house is made of wood? And it's right next door to his house? What if the whole town is made of wood? Well, I think we'd all agree that the right thing to do is put out that fire first, and then say, "What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn't happen in the future? How can we fire proof our houses?" That's where we are now. We're having-- we have a fire going on.
PELLEY It's still burning.
BERNANKE It's still burning
PELLEY Are all the big banks that you regulate solvent?
BERNANKE I believe they are, yes. But we are doing a-- a-- a stress test right now, where we're looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect. And what we plan to do is to say how much capital would each bank need to be well capitalized. Not just solvent, but well capitalized, even in these more adverse scenarios.
PELLEY Are you committing in this interview, that you are not going to let any of these banks fail? That no matter what their balance sheet actually looks like, they are not going to fail?
BERNANKE They are not going to fail. But what we can do, should it be necessary, is-- is try to wind it down in a safe way.
IN OTHER WORDS, BERNANKE THINKS GOVERNMENT SHOULD STABILIZE FAILED FINANCIAL COMPANIES AND TAKE THEM APART SLOWLY.
BEN BERNANKE. So, for example, in the case of AIG, we've prevented a bankruptcy, because of the chaos that would create. But we're also demanding that AIG divest itself, sell off its-- subsidiaries, and use the proceeds to pay back the government.
SCOTT PELLEY: What are the dangers now? What keeps you up at night?
BEN BERNANKE the biggest risk is that, you know, we don't have the political will. We don't have the-- the commitment to-- to solve this problem, and that we let it just continue. In which case-- you know, we-- we can't-- we can't count on recovery.
THE FED ESTIMATES THE WEALTH OF AMERICAN FAMILIES FELL 18 PERCENT IN 2008 THE WORST SINCE THE GREAT DEPRESSION. IN A MOMENT BERNANKE TELLS US WHAT THE FIRST SIGNS OF RECOVERY WOULD LOOK LIKE.
BEN BERNANKE IS DOING THINGS WITH THE FEDERAL RESERVE THAT HAVE NEVER BEEN DONE. IT MAY BE BECAUSE HE'S NOT A CREATURE OF WASHINGTON OR WALL STREET. HE GREW UP, MIDDLE CLASS, THE SMARTEST KID IN A TOWN NOW FALLING ON HARD TIMES. HE TOLD US, BECAUSE THE FED IS SO POWERFUL, IT SHOULD BE MORE OPEN.
THE SEAL OF THE FEDERAL RESERVE IS EMBEDDED IN THE FLOOR JUST OUTSIDE THE ROOM THAT CHANGES THE FORTUNES OF THE WORLD.
PELLEY Wow. They don't build them like this any more.
THIS IS WHERE BERNANKE MEETS WITH HIS SIX FELLOW GOVERNORS OF THE FEDERAL RESERVE, ALL OF THEM APPOINTED BY THE PRESIDENT OF THE UNITED STATES. BERNANKE ALSO CHAIRS THE FEDERAL OPEN MARKET COMMITTEE WHICH DECIDES INTEREST RATES.
PELLEY those meetings are secret. Why is that?
BERNANKE if we held those things with a TV camera on us-- it would create lots of volatility and problems in the market. But I should say that, you know, we've come a long way. In 1994, when the Fed made a policy decision to change interest rates, wouldn't even announce that we made a change. But now, after every meeting, we put out a statement, say what we did, explain what we did, why we're doing it. And three weeks later, we put out minutes to describe everything that happened in the meeting. So we're becoming much more transparent.
PELLEY when I called and proposed this interview about a year ago, your representative laughed out loud. And said, "The Fed chairman never does an interview." I wonder why are you doing this?
BERNANKE Well, it's an extraordinary time. It's an extraordinary time. This is a chance for me, I think, to talk to-- to America directly.
AND A CHANCE FOR US TO UNDERSTAND WHERE HE COMES FROM.
BEN SHALOM BERNANKE GREW UP IN ONE OF THE FEW JEWISH FAMILIES IN DILLON, SOUTH CAROLINA, TODAY, A TOWN OF ABOUT SIX THOUSAND PEOPLE. HIS GRANDFATHER, JONAS, IMMIGRATED FROM EASTERN EUROPE, LANDED AT ELLIS ISLAND, AND CAME HERE TO START A DRUG STORE.
BERNANKE Our family came here in 1941. My-- grandfather, Jonas Bernanke bought this building-- made it-- to the JB Drugs, after his initials--
LATER HIS FATHER AND UNCLE TOOK OVER THE STORE WHICH HAS SINCE BECOME A RESTAURANT.
PELLEY We're sitting on this corner where your family's store was. And I see it's Main Street.
BERNANKE Yes.
PELLEY People feel like guys like you are tuned into what happens on Wall Street and you forget places like this.
BERNANKE You know I come from Main Street. That's-- that's-- that's my background. And I've never been on Wall Street. And I care about Wall Street for one reason and one reason only-- because what happens on Wall Street matters to Main Street. And if we don't have stabilization in the financial markets, if we don't take the steps necessary to make sure that credit is flowing again, then my father couldn't get a loan to build his new store.
BERNANKE when I was young we had just a screen porch over here on the left side.
WE WENT TO THE OLD NEIGHBORHOOD. THE BERNANKE'S LEFT HERE YEARS AGO AND A RECENT OWNER COULDN'T QUITE MAKE THE MORTGAGE SO THE ECONOMY LITERALLY HIT HOME.
PELLEY When you first heard that your childhood home had gone into foreclosure, what did you think?
BERNANKE Well, I-- I was sorry to hear it. But, you know, I-- in a way, I wasn't surprised. Dillon is-- has taken, you know, has taken a pretty big hit in the-- in economic downturn. Unemployment rate's about 14 percent. And there have been a good number of foreclosures and plant closings and those things; I think about that.
NUMBERS WERE ALWAYS BERNANKE'S THING. HE TAUGHT HIMSELF CALCULUS AND GOT AN SAT SCORE OF 1590 OUT OF 1600. A FRIEND TALKED HIM INTO AIMING HIGH FOR COLLEGE.
BERNANKE I came home from school one day and there was a phone call for me. And I picked up the phone. They said, "This is the Harvard Admissions Department. We'd like to let you know that you're accepted-- in the freshman class." And I said, "Come on, who is this really?" But my parents had their doubts about my leaving and going too far from home.
PELLEY No! Wait a minute. Your parents weren't thrilled that you were going to Harvard? I mean this is a dream come true.
BERNANKE my mother was definitely against it. First of all, she said, you know, "You don't have the clothes. You won't be able to dress properly for-- for Harvard. And-- it's a long way from here. How you going to come home on holidays and so on. So, my parents ate into their savings to let me go, which I'm always grateful for.
BERNANKE HELPED PAY FOR COLLEGE WORKING CONSTRUCTION AND WORKING HERE. THE FUTURE CHAIRMAN OF THE FED, WORE A PONCHO AND WAITED TABLES AT SOUTH OF THE BORDER.
PELLEY What did you learn about work?
BERNANKE work is hard, that in order to feed your family and to give your kids opportunities you-- it's not an easy thing.
BACK IN THE MARBLE CONFINES OF THE FEDERAL RESERVE BERNANKE TOLD US THAT HE UNDERSTANDS THAT MANY AMERICANS ARE AFRAID.
PELLEY I've been kicking around the country. I spoke to a woman in Ohio, who took her son out of college, because she got laid off. I spoke to a woman in Nevada, who has an advanced stage of cancer. And she was told by her county hospital that they couldn't treat her because a hole had been blown in the State budget. What do you say to those people?
BERNANKE Well, I got into economics, because I wanted to make things better for the average person. When I see a job loss number, 650,000, like we saw last month-- I know that's-- that's not just a number. That's 650,000 lives that have been disrupted. Families that have had to move or take children out of school. Houses that may be in danger of foreclosure. I know something about what people are going through.
AND THAT MAKES IT ALL THE MORE OUTRAGEOUS WHEN HE HEARS OF FINANCIAL FIRMS HANDING OUT PERKS AND BONUSES AFTER THEY'VE TAKEN BAILOUT MONEY.
BERNANKE: the era of this high living, this is over now. And that they need to be responsible and use the money-- constructively.
PELLEY And you would say what to those bankers right now in this interview?
BERNANKE I'd say that-- their job right now is to find a way to make loans to creditworthy borrowers, to get their banks back on the path of making good loans, safe loans, and to-- and to have a reasonable sense of humility based on, you know, what's happened in the last 18 months.
WE ASKED BERNANKE WHAT IT'S BEEN LIKE AT THE OFFICE THE LAST 18 MONTHS, WITH HIS STAFF SOMETIMES WORKING 80 HOUR WEEKS.
PELLEY I noticed when we were in your office. You have a couch in there. You been sleeping on that couch?
BERNANKE: Once in a while.
PELLEY Really?
BERNANKE Once in a while, yes. And sometimes, it goes through the weekend. Sometimes it goes overnight.
THE FEDERAL RESERVE IS THE LIFE BLOOD OF THE BANKING SYSTEM. ITS`12 REGIONAL BANKS ARE CLEARING HOUSES FOR COMMERCIAL BANKS. THIS IS ONE OF THE VAULTS ASSOCIATED WITH THE RESERVE BANK IN NEW YORK. ROBOTS CARRY CASH IN THE VAULT THAT IS AS BIG AS A FOOTBALL FIELD AND FOUR STORIES HIGH. EACH PALLET, LOADED WITH HUNDRED DOLLAR BILLS IS WORTH 64 MILLION. THE FED HAS 22-THOUSAND EMPLOYEES. IT CLEARS YOUR CHECKS AND YOUR ATM WITHDRAWALS. AND PROVIDES ECONOMIC FORECASTS. BUT ONE OF ITS MOST IMPORTANT RESPONSIBILITIES IS REGULATING THE NATION'S BIGGEST BANKS�"TO BE THE WATCHDOG.
PELLEY You're supposed to keep them out of trouble. So, how did all this happen?
BERNANKE Well, a lot of mistakes got made. No question about it. But, you know, this was a much bigger thing than any single firm or any single�"individual over the last-- dozen years or so, enormous amounts of savings has flowed into the United States, and some other industrial countries. That savings has come from China and East Asia. It's come from oil producers. And it has-- and hundreds of billions of dollars, it has come into our financial system. And, you know, that would be great if we took that money and invested it wisely, and got a high return. But instead, our financial system-- didn't-- didn't do a good job. We had a regulatory system that was like a sandcastle on the beach. When you had little small waves just lapping up against the sand castle, everything looked good. But when you had a big breaker come in, suddenly it-- the system wasn't strong enough to deal with it.
PELLEY: Does the Federal Reserve bear any responsibility for missing what was happening to the banks, as it was happening?
BERNANKE Well-- like other regulators-- we-- we probably could have done more. We've already done a lot of-- put a lot of effort into reviewing our practices. And reviewing the bank's practices. We are trying to strengthen our regulation at every point that we can. So, I don't want to deny that we certainly could have done a better job, and others could have done a better job.
NOW PRESIDENT OBAMA AND THE CONGRESS HAVE FISCAL STIMULUS PLAN OF NEARLY 800 BILLION DOLLARS. THERE'S A SEPARATE BAILOUT FOR FINANCIAL FIRMS-- THAT'S AT LEAST 700 BILLION. NEXT THE GOVERNMENT IS LOOKING FOR A WAY TO CLEAR BAD DEBT OFF THE BOOKS OF CRIPPLED INSTITUTIONS.
PELLEY There was a panic in 1907. So, the Fed was created to prevent that from ever happening again. And then we got the Great Depression. And now we have this. How do we prevent this from occurring another time?
BERNANKE well, tougher regulation of large firms. It includes having a set of laws that allows us to wind down. A large, internationally active firm, without the adverse impacts on the markets that a disorderly bankruptcy would have. It includes possibly having a systemic regulator. A-- regulator that has some responsibility to look at the system as a whole.
PELLEY Your response has been to do what the Fed didn't do in 1929, and that is pour money into the system. But there's an argument made today that that's not what the problem is. The problem isn't that there's too little money in the system. The problem is there's too much fear in the system. That with these companies being propped up by the government, no one on Wall Street can tell who's solvent and who's not. And therefore, business does not move.
BERNANKE Well, I absolutely agree that confidence is key. People don't know what's happening. And they're afraid. And they're not sure what-- you know, whether or not the-- the-- the system is going to recover. So, how do you get confidence, that's the question. And I think the way to get confidence is to show progress.
PELLEY: but are you seeing any progress? What's going well?
BERNANKE I think all of our efforts, so far-- have produced results. We're buying about $500 billion in-- mortgages-- in package and securities by-- the G.S.E.s, Fannie Mae and Freddie Mac. And-- that seems-- to have brought down mortgage rates significantly. It allows people to refinance. To get out of high rate mortgages. we are seeing progress in-- in the money market mutual funds, and in the business lending area.
And I think as those green shoots begin to appear in different markets-- and as some confidence begins to come back-- that will begin the positive dynamic that brings our economy back.
PELLEY: Do you see green shoots?
BERNANKE I do. I do see green shoots. And-- not everywhere, but certainly in some of the markets that we've been-- functioning in. And-- we've seen some improvement in-- in the banks, as well, certainly in some key cases.
PELLEY: What will be the first signs of recovery?
BERNANKE one sign would be that a large bank is successful in raising private equity. Right now, all the private money is sitting on the sidelines saying, "We don't know what these banks are worth. We don't know that they're stable." And they're not willing to put their money into the banks.
PELLEY: If you had a message for the American People in this interview, what would it be?
BERNANKE: Scott, I'd say three things. I'd say, first of all, that the Federal Reserve is here, and is going to do everything possible to support this recovery. The second thing I would say is that recovery is not going to happen until the financial markets and the banks are stabilized. And we do have a plan, we have a program for that. But it's going to take some patience. It's going to take some support, and you know, we're going to have to go forward with that. But the third and final thing I'd just like to say to the American People is that I have every confidence that this economy will recover, and recover in a strong and sustained way. The American people are among the most productive in the world. We have the best technologies. We have-- great universities. We have entrepreneurs. I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain-- the most powerful and dynamic economy in the world.
Page Printed from: http://www.realclearpolitics.com/articles/2009/03/bernanke_60_minutes.html at March 15, 2009 - 10:43:50 PM PDT
Interview with Ben Bernanke
60 Minutes
PELLEY Mr. Chairman, I'm going to start with a question that everyone wants me to ask: When does this end?
BERNANKE: It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis. We've seen some progress in the financial markets, absolutely. But until we get that stabilized and working normally, we're not going to see recovery. But we do have a plan. We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time.
PELLEY you think the recession is going to end this year?
BERNANKE In the sense that this decline will begin to moderate and we'll begin to see leveling off. We won't be back to full employment. But we will see, I hope, the end of these declines that have been so-- so strong in a last couple of quarters.
PELLEY: But you wouldn't say at this point that we're out of the woods?
BERNANKE No. I think the key issue is the banking system and the financial system.
PELLEY Unemployment, as we sit here, is about 8.1 percent. I wonder, do you expect double digit unemployment?
BERNANKE Well, it's hard to forecast exactly where we're going. Unemployment is rising. Job losses are still-- still very severe. And no doubt, the unemployment rate's going to go-- go higher than it is. But I think, again, that if we do succeed in stabilizing the financial system, that we'll begin to see a-- a slower pace of decline, and eventually, a stabilization that will set the basis for a-- a recovery.
PELLEY You seem to be saying that we're not heading into a new American depression?
BERNANKE I think we've averted that-- that risk.I think we've gotten past that and now the problem is to get the thing working properly again.
BEN BERNANKE, AGE 55, HAS BEEN CHAIRMAN OF THE FEDERAL RESERVE BOARD SINCE 2006. FOR OUR INTERVIEW, HE OPENED UP THE FED HEADQUARTERS, RARELY SEEN BY THE PUBLIC. IT'S A MONUMENTAL BUILDING ALONG THE NATIONAL MALL. CONSTRUCTION STARTED IN 1935 IN THE DEPTHS OF THE GREAT DEPRESSION.
PELLEY You know Mr Chairman I think the Federal Reserve, for most people, is a mystery.
BERNANKE Well is an institution that people don't hear so much about but it's a very Important one. It manages monetary policy for the country. It's one of the main tools we have for stabilizing our economy and keeping prices stable.
PELLEY when was it founded?
BERNANKE The Fed was created by Congress in 1913. And it's original purpose was to deal with financial panics which is what we're doing right now
BERNANKE'S CRISIS STARTED IN 2007 WITH THE MORTGAGE MELT DOWN. LENDERS BEGAN TO FAIL. BERNANKE CUT INTEREST RATES REPEATEDLY. IN 2008, THE FED STOPPED THE COLLAPSE OF BEAR STEARNS BY ARRANGING A SALE TO ANOTHER FIRM. BUT THEN CAME THE END OF WALL STREET AS WE KNEW IT. MORTGAGE GIANTS FANNY MAE AND FREDDIE MAC WERE SEIZED BY THE GOVERNMENT. ON SEPTEMBER 14TH, MERRILL LYNCH WAS SOLD IN DISTRESS. THE NEXT DAY 158 YEAR OLD LEHMAN BROTHERS FAILED.
PELLEY You didn't rescue Lehman Brothers. It set off a worldwide panic when it went bankrupt. And I wonder, looking back, whether you think that was a mistake.
BERNANKE there were many people who said, "Let them fail." You know, it's not a problem. The markets will take care of it. And I-- I think I knew better than that. And Lehman proved that you cannot let a large internationally active firm fail in the middle of a financial crisis. Now was it a mistake? It wasn't a mistake for the following reason we didn't have the option we didn't have the tools -- the Federal Reserve cannot put capital into an institution. All we can do is make loans against collateral.
THE DAY AFTER LEHMAN, BERNANKE'S FED DID SOMETHING ASTOUNDING. IT LOANED 85 BILLION DOLLARS TO A COMPANY THAT WASN'T A BANK AT ALL-- AMERICAN INTERNATIONAL GROUP, THE GLOBAL INSURANCE GIANT THAT WAS ALSO INVOLVED IN BACKING RISKY MORTGAGE INVESTMENTS. BERNANKE SAYS, UNLIKE LEHMAN, THE FED COULD MAKE THE LOAN BASED ON GOOD COLLATERAL IN AIG'S PORTFOLIO.
PELLEY There have now been four rescues of AIG, for about $160 billion. Why is that necessary?
BERNANKE Let me just first say that-- of all the events and all of the things we've done in the last 18 months, the-- the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG. Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a-- we had a situation where the failure of that company would have brought down the financial system.
PELLEY You say it makes you angry? What do you mean by that?
BERNANKE It makes me angry. I slammed the phone more than a few times on discussing AIG. It's-- it's just absolutely-- I understand why the American people are angry. It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets-- that was operating out of the sight of regulators, but which we have no choice but the stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy.
BY SEPTEMBER BERNANKE AND FORMER TREASURY SECRETARY HANK PAULSON WENT TO CAPITOL HILL TO URGE A MASSIVE BAILOUT OF THE BANKING SYSTEM.
BERNANKE At that period, I felt we were pretty close to a global financial meltdown.
PELLEY how much danger was there? How close a call?
BERNANKE It was very close. It was very close. The Congress passed the bill that gave Treasury the right to put capital into the banks-- in the first week of October. And it was in the second week of October that the crisis reached its peak.If we had not had those powers, we could have had a much, much worse outcome. So it was a very dangerous situation.
PELLEY Was anyone on Capitol Hill skeptical? Did they push back at all--you know, Mr. Chairman, it's probably not quite that bad?
BERNANKE: Well, I do remember one conversation I had where I was addressing a-- a caucus of-- of congressmen. And a congressman said to me-- he said, "Mr. Chairman, you know, I'm talking to bankers in my town. I'm talking to shopkeepers in my town. And they say things are normal. Nothing's going on. We don't-- we don't see any problem." And I turned to him and I said, "You will.”
THAT SECOND WEEK OF OCTOBER, THE DOW FELL 18 PERCENT. ITS WORST WEEK IN HISTORY.
IN THE MIDST OF THE CRISIS, BERNANKE HAD FREEDOM TO ACT IMMEDIATELY, HE DOESN'T NEED PRIOR PERMISSION FROM CONGRESS OR THE PRESIDENT. WHILE THEY DEBATED ON CAPITOL HILL, BERNANKE CUT INTEREST RATES NEARLY TO ZERO THEN HE USED DEPRESSION ERA EMERGENCY POWERS TO LAUNCH A DOZEN RESCUE PROGRAMS OF HIS OWN. THERE WAS SUPPORT FOR MONEY MARKET FUNDS, MORTGAGES, SHORT TERM LENDING TO SMALL BUSINESS, AND SUPPORT FOR AUTO LOANS, STUDENT LOANS AND SMALL BUSINESS LOANS. --COMMITMENTS OF A TRILLION DOLLARS�"DOUBLING THE SIZE OF THE FED'S BALANCE SHEET.
PELLEY Is that tax money that the Fed is spending?
BERNANKE It's not tax money. the banks have-- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it's much more akin to printing money than it is to borrowing.
PELLEY You've been printing money?
BERNANKE Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. when the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.
HE'S NOT KIDDING ABOUT PRINTING MONEY. THE FED ISSUES U.S. CURRENCY. THAT'S WHY IT SAYS FEDERAL RESERVE NOTE ON ALL THE BILLS IN YOUR WALLET. THIS IS THE BUREAU OF ENGRAVING AND PRINTING JUST A FEW BLOCKS FROM BERNANKE'S OFFICE. THE FED'S MANDATE FROM CONGRESS IS TO PUT ENOUGH MONEY IN THE SYSTEM FOR MAXIMUM EMPLOYMENT, BUT NOT SO MUCH THAT IT SETS OFF INFLATION. THE FED ACTUALLY PAYS FOR ITSELF AND RETURNS BILLIONS IN PROFITS TO THE TREASURY.
IN A SENSE BERNANKE HAS BEEN PREPARING FOR THIS EMERGENCY HIS WHOLE PROFESSIONAL LIFE. HE GOT A PhD IN ECONOMICS FROM M.I.T. HE CHAIRED THE ECONOMICS DEPARTMENT AT PRINCETON AND HIS SPECIALTY IS THE GREAT DEPRESSION. HE'S AMONG MANY ECONOMISTS WHO NOW BELIEVE IT WAS THE FEDERAL RESERVE ITSELF THAT HELPED TURN A RECESSION IN 1929 INTO A GLOBAL CALAMITY.
BERNANKE: they made two mistakes, basically. One was they let the money supply contract very sharply. Prices fell. Deflation. So monetary policy was, in fact, very contractionary. Very tight-- during that period. And then the second mistake they made was they let the banks fail. They didn't make any strong effort to prevent the failure of thousands of banks.
BERNANKE TOLD US WE WERE CLOSE TO A SECOND DEPRESSION AND HE IS DETERMINED TO NOT LET THE MAJOR BANKS FAIL ON HIS WATCH.
PELLEY: One of the things that I think many people watching this interview don't understand, is why there are multiple bailouts, four bailouts of AIG, three bailouts of Citigroup. There is a sense that this is a band-aid approach, that we're not getting to the root of the problem.
BERNANKE: Well, part of the issue is that-- you know, the economy has gotten a good bit worse. You know, the first part of the crisis was subprime and other assets that were toxic. Now, we're in a second phase, which is that the economy is very weak, So the economy's weakness has meant that some of the initial attempts to stabilize the banks haven't been enough, and we've had to do more.
PELLEY You know, Mr. Chairman, there are so many people outside this building, across this country, who say, "To hell with them. They made bad bets. the wages of failure on Wall Street should be failure."
BERNANKE Let me give you an analogy, if I might. If you have a neighbor, who smokes in bed. And he's a risk to everybody. If suppose he sets fire to his-- to his house, and you might say to yourself, you know, "I'm not going to call the fire department. Let his house burn down. It's fine with me." But then, of course, but what if your house is made of wood? And it's right next door to his house? What if the whole town is made of wood? Well, I think we'd all agree that the right thing to do is put out that fire first, and then say, "What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn't happen in the future? How can we fire proof our houses?" That's where we are now. We're having-- we have a fire going on.
PELLEY It's still burning.
BERNANKE It's still burning
PELLEY Are all the big banks that you regulate solvent?
BERNANKE I believe they are, yes. But we are doing a-- a-- a stress test right now, where we're looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect. And what we plan to do is to say how much capital would each bank need to be well capitalized. Not just solvent, but well capitalized, even in these more adverse scenarios.
PELLEY Are you committing in this interview, that you are not going to let any of these banks fail? That no matter what their balance sheet actually looks like, they are not going to fail?
BERNANKE They are not going to fail. But what we can do, should it be necessary, is-- is try to wind it down in a safe way.
IN OTHER WORDS, BERNANKE THINKS GOVERNMENT SHOULD STABILIZE FAILED FINANCIAL COMPANIES AND TAKE THEM APART SLOWLY.
BEN BERNANKE. So, for example, in the case of AIG, we've prevented a bankruptcy, because of the chaos that would create. But we're also demanding that AIG divest itself, sell off its-- subsidiaries, and use the proceeds to pay back the government.
SCOTT PELLEY: What are the dangers now? What keeps you up at night?
BEN BERNANKE the biggest risk is that, you know, we don't have the political will. We don't have the-- the commitment to-- to solve this problem, and that we let it just continue. In which case-- you know, we-- we can't-- we can't count on recovery.
THE FED ESTIMATES THE WEALTH OF AMERICAN FAMILIES FELL 18 PERCENT IN 2008 THE WORST SINCE THE GREAT DEPRESSION. IN A MOMENT BERNANKE TELLS US WHAT THE FIRST SIGNS OF RECOVERY WOULD LOOK LIKE.
BEN BERNANKE IS DOING THINGS WITH THE FEDERAL RESERVE THAT HAVE NEVER BEEN DONE. IT MAY BE BECAUSE HE'S NOT A CREATURE OF WASHINGTON OR WALL STREET. HE GREW UP, MIDDLE CLASS, THE SMARTEST KID IN A TOWN NOW FALLING ON HARD TIMES. HE TOLD US, BECAUSE THE FED IS SO POWERFUL, IT SHOULD BE MORE OPEN.
THE SEAL OF THE FEDERAL RESERVE IS EMBEDDED IN THE FLOOR JUST OUTSIDE THE ROOM THAT CHANGES THE FORTUNES OF THE WORLD.
PELLEY Wow. They don't build them like this any more.
THIS IS WHERE BERNANKE MEETS WITH HIS SIX FELLOW GOVERNORS OF THE FEDERAL RESERVE, ALL OF THEM APPOINTED BY THE PRESIDENT OF THE UNITED STATES. BERNANKE ALSO CHAIRS THE FEDERAL OPEN MARKET COMMITTEE WHICH DECIDES INTEREST RATES.
PELLEY those meetings are secret. Why is that?
BERNANKE if we held those things with a TV camera on us-- it would create lots of volatility and problems in the market. But I should say that, you know, we've come a long way. In 1994, when the Fed made a policy decision to change interest rates, wouldn't even announce that we made a change. But now, after every meeting, we put out a statement, say what we did, explain what we did, why we're doing it. And three weeks later, we put out minutes to describe everything that happened in the meeting. So we're becoming much more transparent.
PELLEY when I called and proposed this interview about a year ago, your representative laughed out loud. And said, "The Fed chairman never does an interview." I wonder why are you doing this?
BERNANKE Well, it's an extraordinary time. It's an extraordinary time. This is a chance for me, I think, to talk to-- to America directly.
AND A CHANCE FOR US TO UNDERSTAND WHERE HE COMES FROM.
BEN SHALOM BERNANKE GREW UP IN ONE OF THE FEW JEWISH FAMILIES IN DILLON, SOUTH CAROLINA, TODAY, A TOWN OF ABOUT SIX THOUSAND PEOPLE. HIS GRANDFATHER, JONAS, IMMIGRATED FROM EASTERN EUROPE, LANDED AT ELLIS ISLAND, AND CAME HERE TO START A DRUG STORE.
BERNANKE Our family came here in 1941. My-- grandfather, Jonas Bernanke bought this building-- made it-- to the JB Drugs, after his initials--
LATER HIS FATHER AND UNCLE TOOK OVER THE STORE WHICH HAS SINCE BECOME A RESTAURANT.
PELLEY We're sitting on this corner where your family's store was. And I see it's Main Street.
BERNANKE Yes.
PELLEY People feel like guys like you are tuned into what happens on Wall Street and you forget places like this.
BERNANKE You know I come from Main Street. That's-- that's-- that's my background. And I've never been on Wall Street. And I care about Wall Street for one reason and one reason only-- because what happens on Wall Street matters to Main Street. And if we don't have stabilization in the financial markets, if we don't take the steps necessary to make sure that credit is flowing again, then my father couldn't get a loan to build his new store.
BERNANKE when I was young we had just a screen porch over here on the left side.
WE WENT TO THE OLD NEIGHBORHOOD. THE BERNANKE'S LEFT HERE YEARS AGO AND A RECENT OWNER COULDN'T QUITE MAKE THE MORTGAGE SO THE ECONOMY LITERALLY HIT HOME.
PELLEY When you first heard that your childhood home had gone into foreclosure, what did you think?
BERNANKE Well, I-- I was sorry to hear it. But, you know, I-- in a way, I wasn't surprised. Dillon is-- has taken, you know, has taken a pretty big hit in the-- in economic downturn. Unemployment rate's about 14 percent. And there have been a good number of foreclosures and plant closings and those things; I think about that.
NUMBERS WERE ALWAYS BERNANKE'S THING. HE TAUGHT HIMSELF CALCULUS AND GOT AN SAT SCORE OF 1590 OUT OF 1600. A FRIEND TALKED HIM INTO AIMING HIGH FOR COLLEGE.
BERNANKE I came home from school one day and there was a phone call for me. And I picked up the phone. They said, "This is the Harvard Admissions Department. We'd like to let you know that you're accepted-- in the freshman class." And I said, "Come on, who is this really?" But my parents had their doubts about my leaving and going too far from home.
PELLEY No! Wait a minute. Your parents weren't thrilled that you were going to Harvard? I mean this is a dream come true.
BERNANKE my mother was definitely against it. First of all, she said, you know, "You don't have the clothes. You won't be able to dress properly for-- for Harvard. And-- it's a long way from here. How you going to come home on holidays and so on. So, my parents ate into their savings to let me go, which I'm always grateful for.
BERNANKE HELPED PAY FOR COLLEGE WORKING CONSTRUCTION AND WORKING HERE. THE FUTURE CHAIRMAN OF THE FED, WORE A PONCHO AND WAITED TABLES AT SOUTH OF THE BORDER.
PELLEY What did you learn about work?
BERNANKE work is hard, that in order to feed your family and to give your kids opportunities you-- it's not an easy thing.
BACK IN THE MARBLE CONFINES OF THE FEDERAL RESERVE BERNANKE TOLD US THAT HE UNDERSTANDS THAT MANY AMERICANS ARE AFRAID.
PELLEY I've been kicking around the country. I spoke to a woman in Ohio, who took her son out of college, because she got laid off. I spoke to a woman in Nevada, who has an advanced stage of cancer. And she was told by her county hospital that they couldn't treat her because a hole had been blown in the State budget. What do you say to those people?
BERNANKE Well, I got into economics, because I wanted to make things better for the average person. When I see a job loss number, 650,000, like we saw last month-- I know that's-- that's not just a number. That's 650,000 lives that have been disrupted. Families that have had to move or take children out of school. Houses that may be in danger of foreclosure. I know something about what people are going through.
AND THAT MAKES IT ALL THE MORE OUTRAGEOUS WHEN HE HEARS OF FINANCIAL FIRMS HANDING OUT PERKS AND BONUSES AFTER THEY'VE TAKEN BAILOUT MONEY.
BERNANKE: the era of this high living, this is over now. And that they need to be responsible and use the money-- constructively.
PELLEY And you would say what to those bankers right now in this interview?
BERNANKE I'd say that-- their job right now is to find a way to make loans to creditworthy borrowers, to get their banks back on the path of making good loans, safe loans, and to-- and to have a reasonable sense of humility based on, you know, what's happened in the last 18 months.
WE ASKED BERNANKE WHAT IT'S BEEN LIKE AT THE OFFICE THE LAST 18 MONTHS, WITH HIS STAFF SOMETIMES WORKING 80 HOUR WEEKS.
PELLEY I noticed when we were in your office. You have a couch in there. You been sleeping on that couch?
BERNANKE: Once in a while.
PELLEY Really?
BERNANKE Once in a while, yes. And sometimes, it goes through the weekend. Sometimes it goes overnight.
THE FEDERAL RESERVE IS THE LIFE BLOOD OF THE BANKING SYSTEM. ITS`12 REGIONAL BANKS ARE CLEARING HOUSES FOR COMMERCIAL BANKS. THIS IS ONE OF THE VAULTS ASSOCIATED WITH THE RESERVE BANK IN NEW YORK. ROBOTS CARRY CASH IN THE VAULT THAT IS AS BIG AS A FOOTBALL FIELD AND FOUR STORIES HIGH. EACH PALLET, LOADED WITH HUNDRED DOLLAR BILLS IS WORTH 64 MILLION. THE FED HAS 22-THOUSAND EMPLOYEES. IT CLEARS YOUR CHECKS AND YOUR ATM WITHDRAWALS. AND PROVIDES ECONOMIC FORECASTS. BUT ONE OF ITS MOST IMPORTANT RESPONSIBILITIES IS REGULATING THE NATION'S BIGGEST BANKS�"TO BE THE WATCHDOG.
PELLEY You're supposed to keep them out of trouble. So, how did all this happen?
BERNANKE Well, a lot of mistakes got made. No question about it. But, you know, this was a much bigger thing than any single firm or any single�"individual over the last-- dozen years or so, enormous amounts of savings has flowed into the United States, and some other industrial countries. That savings has come from China and East Asia. It's come from oil producers. And it has-- and hundreds of billions of dollars, it has come into our financial system. And, you know, that would be great if we took that money and invested it wisely, and got a high return. But instead, our financial system-- didn't-- didn't do a good job. We had a regulatory system that was like a sandcastle on the beach. When you had little small waves just lapping up against the sand castle, everything looked good. But when you had a big breaker come in, suddenly it-- the system wasn't strong enough to deal with it.
PELLEY: Does the Federal Reserve bear any responsibility for missing what was happening to the banks, as it was happening?
BERNANKE Well-- like other regulators-- we-- we probably could have done more. We've already done a lot of-- put a lot of effort into reviewing our practices. And reviewing the bank's practices. We are trying to strengthen our regulation at every point that we can. So, I don't want to deny that we certainly could have done a better job, and others could have done a better job.
NOW PRESIDENT OBAMA AND THE CONGRESS HAVE FISCAL STIMULUS PLAN OF NEARLY 800 BILLION DOLLARS. THERE'S A SEPARATE BAILOUT FOR FINANCIAL FIRMS-- THAT'S AT LEAST 700 BILLION. NEXT THE GOVERNMENT IS LOOKING FOR A WAY TO CLEAR BAD DEBT OFF THE BOOKS OF CRIPPLED INSTITUTIONS.
PELLEY There was a panic in 1907. So, the Fed was created to prevent that from ever happening again. And then we got the Great Depression. And now we have this. How do we prevent this from occurring another time?
BERNANKE well, tougher regulation of large firms. It includes having a set of laws that allows us to wind down. A large, internationally active firm, without the adverse impacts on the markets that a disorderly bankruptcy would have. It includes possibly having a systemic regulator. A-- regulator that has some responsibility to look at the system as a whole.
PELLEY Your response has been to do what the Fed didn't do in 1929, and that is pour money into the system. But there's an argument made today that that's not what the problem is. The problem isn't that there's too little money in the system. The problem is there's too much fear in the system. That with these companies being propped up by the government, no one on Wall Street can tell who's solvent and who's not. And therefore, business does not move.
BERNANKE Well, I absolutely agree that confidence is key. People don't know what's happening. And they're afraid. And they're not sure what-- you know, whether or not the-- the-- the system is going to recover. So, how do you get confidence, that's the question. And I think the way to get confidence is to show progress.
PELLEY: but are you seeing any progress? What's going well?
BERNANKE I think all of our efforts, so far-- have produced results. We're buying about $500 billion in-- mortgages-- in package and securities by-- the G.S.E.s, Fannie Mae and Freddie Mac. And-- that seems-- to have brought down mortgage rates significantly. It allows people to refinance. To get out of high rate mortgages. we are seeing progress in-- in the money market mutual funds, and in the business lending area.
And I think as those green shoots begin to appear in different markets-- and as some confidence begins to come back-- that will begin the positive dynamic that brings our economy back.
PELLEY: Do you see green shoots?
BERNANKE I do. I do see green shoots. And-- not everywhere, but certainly in some of the markets that we've been-- functioning in. And-- we've seen some improvement in-- in the banks, as well, certainly in some key cases.
PELLEY: What will be the first signs of recovery?
BERNANKE one sign would be that a large bank is successful in raising private equity. Right now, all the private money is sitting on the sidelines saying, "We don't know what these banks are worth. We don't know that they're stable." And they're not willing to put their money into the banks.
PELLEY: If you had a message for the American People in this interview, what would it be?
BERNANKE: Scott, I'd say three things. I'd say, first of all, that the Federal Reserve is here, and is going to do everything possible to support this recovery. The second thing I would say is that recovery is not going to happen until the financial markets and the banks are stabilized. And we do have a plan, we have a program for that. But it's going to take some patience. It's going to take some support, and you know, we're going to have to go forward with that. But the third and final thing I'd just like to say to the American People is that I have every confidence that this economy will recover, and recover in a strong and sustained way. The American people are among the most productive in the world. We have the best technologies. We have-- great universities. We have entrepreneurs. I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain-- the most powerful and dynamic economy in the world.
Page Printed from: http://www.realclearpolitics.com/articles/2009/03/bernanke_60_minutes.html at March 15, 2009 - 10:43:50 PM PDT
THE REASONS FOR THE DECLINE OF THE NEWSPAPER?
Cause of Death Determined for Print Media
By Clay Shirky, 5:00 PM on Sat Mar 14 2009, 5,501 views
Heart disease is the leading cause of death among humans. As Clay Shirky points out in his incisive piece Newspapers and Thinking the Unthinkable, an inability to adapt is what killed print. Coroner's report follows.
Back in 1993, the Knight-Ridder newspaper chain began investigating piracy of Dave Barry's popular column, which was published by the Miami Herald and syndicated widely. In the course of tracking down the sources of unlicensed distribution, they found many things, including the copying of his column to alt.fan.dave_barry on usenet; a 2000-person strong mailing list also reading pirated versions; and a teenager in the Midwest who was doing some of the copying himself, because he loved Barry's work so much he wanted everybody to be able to read it.
One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of "When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem." I think about that conversation a lot these days.
The problem newspapers face isn't that they didn't see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several. One was to partner with companies like America Online, a fast-growing subscription service that was less chaotic than the open internet. Another plan was to educate the public about the behaviors required of them by copyright law. New payment models such as micropayments were proposed. Alternatively, they could pursue the profit margins enjoyed by radio and TV, if they became purely ad-supported. Still another plan was to convince tech firms to make their hardware and software less capable of sharing, or to partner with the businesses running data networks to achieve the same goal. Then there was the nuclear option: sue copyright infringers directly, making an example of them.
As these ideas were articulated, there was intense debate about the merits of various scenarios. Would DRM or walled gardens work better? Shouldn't we try a carrot-and-stick approach, with education and prosecution? And so on. In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn't get much discussion in the nation's newsrooms, for the obvious reason.
The unthinkable scenario unfolded something like this: The ability to share content wouldn't shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM's requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.
Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals. The last couple of decades haven't been ordinary, however. Inside the papers, the pragmatists were the ones simply pointing out that the real world was looking increasingly like the unthinkable scenario. These people were treated as if they were barking mad. Meanwhile the people spinning visions of popular walled gardens and enthusiastic micropayment adoption, visions unsupported by reality, were regarded not as charlatans but saviors.
When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse. This shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of its most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away.
* * *
The curious thing about the various plans hatched in the '90s is that they were, at base, all the same plan: "Here's how we're going to preserve the old forms of organization in a world of cheap perfect copies!" The details differed, but the core assumption behind all imagined outcomes (save the unthinkable one) was that the organizational form of the newspaper, as a general-purpose vehicle for publishing a variety of news and opinion, was basically sound, and only needed a digital facelift. As a result, the conversation has degenerated into the enthusiastic grasping at straws, pursued by skeptical responses.
"The Wall Street Journal has a paywall, so we can too!" (Financial information is one of the few kinds of information whose recipients don't want to share.) "Micropayments work for iTunes, so they will work for us!" (Micropayments only work where the provider can avoid competitive business models.) "The New York Times should charge for content!" (They've tried, with QPass and later TimesSelect.) "Cook's Illustrated and Consumer Reports are doing fine on subscriptions!" (Those publications forgo ad revenues; users are paying not just for content but for unimpeachability.) "We'll form a cartel!" (…and hand a competitive advantage to every ad-supported media firm in the world.)
Round and round this goes, with the people committed to saving newspapers demanding to know "If the old model is broken, what will work in its place?" To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.
With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves - the incredible difficulty, complexity, and expense of making something available to the public - has stopped being a problem.
* * *
Elizabeth Eisenstein's magisterial treatment of Gutenberg's invention, The Printing Press as an Agent of Change, opens with a recounting of her research into the early history of the printing press. She was able to find many descriptions of life in the early 1400s, the era before movable type. Literacy was limited, the Catholic Church was the pan-European political force, Mass was in Latin, and the average book was the Bible. She was also able to find endless descriptions of life in the late 1500s, after Gutenberg's invention had started to spread. Literacy was on the rise, as were books written in contemporary languages, Copernicus had published his epochal work on astronomy, and Martin Luther's use of the press to reform the Church was upending both religious and political stability.
What Eisenstein focused on, though, was how many historians ignored the effects of the press circa 1500. To describe life before or after the spread of print was child's play; those dates were safely distanced from upheaval. The hard question Eisenstein's book asks is "How did we get from the world before the printing press to the world after it? What was the revolution itself like?"
Chaotic, as it turns out. The Bible was translated into local languages; was this an educational boon or the work of the devil? Erotic novels appeared, prompting the same set of questions. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn't know what to think. If you can't trust Aristotle, who can you trust?
During the wrenching transition to print, experiments were only revealed in retrospect to be turning points. Aldus Manutius, the Venetian printer and publisher, invented the smaller octavo volume along with italic type. What seemed like a minor change - take a book and shrink it - was in retrospect a key innovation in the democratization of the printed word, as books became cheaper, more portable, and therefore more desirable, expanding the market for all publishers, which heightened the value of literacy still further.
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn't apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can't predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing. (Luther and the Church both insisted, for years, that whatever else happened, no one was talking about a schism.) Ancient social bargains, once disrupted, can neither be mended nor quickly replaced, since any such bargain takes decades to solidify.
And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won't break before new systems are in place. They are demanding to be told that ancient social bargains aren't in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
There are fewer and fewer people who can convincingly tell such a lie.
* * *
If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage - a breaking story, a key interview - at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience.
For a long time, longer than anyone in the newspaper business has been alive in fact, print journalism has been intertwined with these economics. The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn't because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn't really have any other vehicle for display ads.
The old difficulties and costs of printing forced everyone doing it into a similar set of organizational models; it was this similarity that made us regard Daily Racing Form and L'Osservatore Romano as being in the same business. That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn't make it any less accidental.
The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They'd never really signed up to fund the Baghdad bureau anyway.
* * *
Print media does much of society's heavy journalistic lifting, from flooding the zone - covering every angle of a huge story - to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren't newspaper readers, because the work of print journalists is used by everyone from politicians to talk radio hosts to bloggers. The newspaper people often note that newspapers benefit society as a whole. This is true, but irrelevant to the problem at hand; "You're gonna miss us when we're gone!" has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?
I don't know. Nobody knows. We're collectively living through 1500, when it's easier to see what's broken than what will replace it. The internet turns 40 this fall. Access by the general public is less than half that age. Web use, as a normal part of life for a majority of the developed world, is less than half that age. We just got here. Even the revolutionaries can't predict what will happen.
Imagine, in 1996, asking some net-savvy soul to expound on the potential of craigslist, then a year old and not yet incorporated. The answer you'd almost certainly have gotten would be extrapolation: "Mailing lists can be powerful tools", "Social effects are intertwining with digital networks", "This points to future ways of managing local information", and so on. What no one would have told you, could have told you, was what actually happened: craiglist became a critical piece of infrastructure. Not the idea of craigslist, or the business model, or even the software driving it. Craigslist itself spread to cover hundreds of cities and has become a part of public consciousness about what is now possible. Experiments are only revealed in retrospect to be turning points.
In craigslist's gradual shift from ‘interesting if minor' to ‘essential and transformative', there is one possible answer to the question "If the old model is broken, what will work in its place?" The answer is: Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did, as octavo volumes did.
Journalism has always been subsidized. Sometimes it's been Wal-Mart and the kid with the bike. Sometimes it's been Richard Mellon Scaife. Increasingly, it's you and me, donating our time. The list of models that are obviously working today, like Consumer Reports and NPR, like ProPublica and WikiLeaks, can't be expanded to cover any general case, but then nothing is going to cover the general case.
Society doesn't need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That's been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we're going to need lots of other ways to strengthen journalism instead.
When we shift our attention from 'save newspapers' to 'save society', the imperative changes from ‘preserve the current institutions' to ‘do whatever works.' And what works today isn't the same as what used to work.
We don't know who the Aldus Manutius of the current age is. It could be Craig Newmark, or Caterina Fake. It could be Martin Nisenholtz, or Emily Bell. It could be some 19 year old kid few of us have heard of, working on something we won't recognize as vital until a decade hence. Any experiment, though, designed to provide new models for journalism is going to be an improvement over hiding from the real, especially in a year when, for many papers, the unthinkable future is already in the past.
For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the reporting we need.
Clay Shirky is an adjunct professor in NYU's graduate Interactive Telecommunications Program and writes on the social and economic effects of Internet technologies.
By Clay Shirky, 5:00 PM on Sat Mar 14 2009, 5,501 views
Heart disease is the leading cause of death among humans. As Clay Shirky points out in his incisive piece Newspapers and Thinking the Unthinkable, an inability to adapt is what killed print. Coroner's report follows.
Back in 1993, the Knight-Ridder newspaper chain began investigating piracy of Dave Barry's popular column, which was published by the Miami Herald and syndicated widely. In the course of tracking down the sources of unlicensed distribution, they found many things, including the copying of his column to alt.fan.dave_barry on usenet; a 2000-person strong mailing list also reading pirated versions; and a teenager in the Midwest who was doing some of the copying himself, because he loved Barry's work so much he wanted everybody to be able to read it.
One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of "When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem." I think about that conversation a lot these days.
The problem newspapers face isn't that they didn't see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several. One was to partner with companies like America Online, a fast-growing subscription service that was less chaotic than the open internet. Another plan was to educate the public about the behaviors required of them by copyright law. New payment models such as micropayments were proposed. Alternatively, they could pursue the profit margins enjoyed by radio and TV, if they became purely ad-supported. Still another plan was to convince tech firms to make their hardware and software less capable of sharing, or to partner with the businesses running data networks to achieve the same goal. Then there was the nuclear option: sue copyright infringers directly, making an example of them.
As these ideas were articulated, there was intense debate about the merits of various scenarios. Would DRM or walled gardens work better? Shouldn't we try a carrot-and-stick approach, with education and prosecution? And so on. In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn't get much discussion in the nation's newsrooms, for the obvious reason.
The unthinkable scenario unfolded something like this: The ability to share content wouldn't shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM's requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.
Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals. The last couple of decades haven't been ordinary, however. Inside the papers, the pragmatists were the ones simply pointing out that the real world was looking increasingly like the unthinkable scenario. These people were treated as if they were barking mad. Meanwhile the people spinning visions of popular walled gardens and enthusiastic micropayment adoption, visions unsupported by reality, were regarded not as charlatans but saviors.
When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse. This shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of its most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away.
* * *
The curious thing about the various plans hatched in the '90s is that they were, at base, all the same plan: "Here's how we're going to preserve the old forms of organization in a world of cheap perfect copies!" The details differed, but the core assumption behind all imagined outcomes (save the unthinkable one) was that the organizational form of the newspaper, as a general-purpose vehicle for publishing a variety of news and opinion, was basically sound, and only needed a digital facelift. As a result, the conversation has degenerated into the enthusiastic grasping at straws, pursued by skeptical responses.
"The Wall Street Journal has a paywall, so we can too!" (Financial information is one of the few kinds of information whose recipients don't want to share.) "Micropayments work for iTunes, so they will work for us!" (Micropayments only work where the provider can avoid competitive business models.) "The New York Times should charge for content!" (They've tried, with QPass and later TimesSelect.) "Cook's Illustrated and Consumer Reports are doing fine on subscriptions!" (Those publications forgo ad revenues; users are paying not just for content but for unimpeachability.) "We'll form a cartel!" (…and hand a competitive advantage to every ad-supported media firm in the world.)
Round and round this goes, with the people committed to saving newspapers demanding to know "If the old model is broken, what will work in its place?" To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.
With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves - the incredible difficulty, complexity, and expense of making something available to the public - has stopped being a problem.
* * *
Elizabeth Eisenstein's magisterial treatment of Gutenberg's invention, The Printing Press as an Agent of Change, opens with a recounting of her research into the early history of the printing press. She was able to find many descriptions of life in the early 1400s, the era before movable type. Literacy was limited, the Catholic Church was the pan-European political force, Mass was in Latin, and the average book was the Bible. She was also able to find endless descriptions of life in the late 1500s, after Gutenberg's invention had started to spread. Literacy was on the rise, as were books written in contemporary languages, Copernicus had published his epochal work on astronomy, and Martin Luther's use of the press to reform the Church was upending both religious and political stability.
What Eisenstein focused on, though, was how many historians ignored the effects of the press circa 1500. To describe life before or after the spread of print was child's play; those dates were safely distanced from upheaval. The hard question Eisenstein's book asks is "How did we get from the world before the printing press to the world after it? What was the revolution itself like?"
Chaotic, as it turns out. The Bible was translated into local languages; was this an educational boon or the work of the devil? Erotic novels appeared, prompting the same set of questions. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn't know what to think. If you can't trust Aristotle, who can you trust?
During the wrenching transition to print, experiments were only revealed in retrospect to be turning points. Aldus Manutius, the Venetian printer and publisher, invented the smaller octavo volume along with italic type. What seemed like a minor change - take a book and shrink it - was in retrospect a key innovation in the democratization of the printed word, as books became cheaper, more portable, and therefore more desirable, expanding the market for all publishers, which heightened the value of literacy still further.
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn't apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can't predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing. (Luther and the Church both insisted, for years, that whatever else happened, no one was talking about a schism.) Ancient social bargains, once disrupted, can neither be mended nor quickly replaced, since any such bargain takes decades to solidify.
And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won't break before new systems are in place. They are demanding to be told that ancient social bargains aren't in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
There are fewer and fewer people who can convincingly tell such a lie.
* * *
If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage - a breaking story, a key interview - at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience.
For a long time, longer than anyone in the newspaper business has been alive in fact, print journalism has been intertwined with these economics. The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn't because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn't really have any other vehicle for display ads.
The old difficulties and costs of printing forced everyone doing it into a similar set of organizational models; it was this similarity that made us regard Daily Racing Form and L'Osservatore Romano as being in the same business. That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn't make it any less accidental.
The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They'd never really signed up to fund the Baghdad bureau anyway.
* * *
Print media does much of society's heavy journalistic lifting, from flooding the zone - covering every angle of a huge story - to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren't newspaper readers, because the work of print journalists is used by everyone from politicians to talk radio hosts to bloggers. The newspaper people often note that newspapers benefit society as a whole. This is true, but irrelevant to the problem at hand; "You're gonna miss us when we're gone!" has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?
I don't know. Nobody knows. We're collectively living through 1500, when it's easier to see what's broken than what will replace it. The internet turns 40 this fall. Access by the general public is less than half that age. Web use, as a normal part of life for a majority of the developed world, is less than half that age. We just got here. Even the revolutionaries can't predict what will happen.
Imagine, in 1996, asking some net-savvy soul to expound on the potential of craigslist, then a year old and not yet incorporated. The answer you'd almost certainly have gotten would be extrapolation: "Mailing lists can be powerful tools", "Social effects are intertwining with digital networks", "This points to future ways of managing local information", and so on. What no one would have told you, could have told you, was what actually happened: craiglist became a critical piece of infrastructure. Not the idea of craigslist, or the business model, or even the software driving it. Craigslist itself spread to cover hundreds of cities and has become a part of public consciousness about what is now possible. Experiments are only revealed in retrospect to be turning points.
In craigslist's gradual shift from ‘interesting if minor' to ‘essential and transformative', there is one possible answer to the question "If the old model is broken, what will work in its place?" The answer is: Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did, as octavo volumes did.
Journalism has always been subsidized. Sometimes it's been Wal-Mart and the kid with the bike. Sometimes it's been Richard Mellon Scaife. Increasingly, it's you and me, donating our time. The list of models that are obviously working today, like Consumer Reports and NPR, like ProPublica and WikiLeaks, can't be expanded to cover any general case, but then nothing is going to cover the general case.
Society doesn't need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That's been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we're going to need lots of other ways to strengthen journalism instead.
When we shift our attention from 'save newspapers' to 'save society', the imperative changes from ‘preserve the current institutions' to ‘do whatever works.' And what works today isn't the same as what used to work.
We don't know who the Aldus Manutius of the current age is. It could be Craig Newmark, or Caterina Fake. It could be Martin Nisenholtz, or Emily Bell. It could be some 19 year old kid few of us have heard of, working on something we won't recognize as vital until a decade hence. Any experiment, though, designed to provide new models for journalism is going to be an improvement over hiding from the real, especially in a year when, for many papers, the unthinkable future is already in the past.
For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the reporting we need.
Clay Shirky is an adjunct professor in NYU's graduate Interactive Telecommunications Program and writes on the social and economic effects of Internet technologies.
Is this a fad or the future of social networking? Hard to tell. However, it is absolutely perfect in a world with NO attention span whatsoever.
If you are interested in Twitter, you may enjoy this article about how to get more followers on the platform:
http://www.doshdosh.com/how-to-get-more-twitter-followers/
If you are interested in Twitter, you may enjoy this article about how to get more followers on the platform:
http://www.doshdosh.com/how-to-get-more-twitter-followers/
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