Notebook, 16 July 2011: Time to put a stake through Friedman and perform a Greenspan exorcism

Crossposted to Antemedius.

A nice summation of the NotW scandal, as it has unfolded thus far, is here, courtest of Robert Zeliger over at FP’s Passport: A Sophie’s Choice For Murdoch:

As far as announcements go, Rebekah Brooks’s resignation today shocked just about no one. The chief executive of News International and a former editor of the disgraced and defunct News of the World had some initial support from Papa Rupert after the scandal first blew up, but as it snowballed this week — crushing everything in its path — her hara-kiri seemed impossible to avoid.

But will she be the last to fall on the sword? The knives are still out for Murdoch and his business empire. And focus has shifted to two important people in Rupert’s inner sanctum. He might find the need to sacrifice one of them. But who will it be: the son and heir apparent, or one of his closest confidantes who has been with him for 50 years?

Well, we already know the answer to that question. Even though son James Murdoch’s hands are far from clean, Les Hinton got the ax yesterday. In the Murdoch family, blood is thicker than water.

None of this should surprise anyone, however please note that Scotland Yard has had in its hands evidence of the goings on at NotW, but refused to open an investigation:

LONDON — For nearly four years they lay piled in a Scotland Yard evidence room, six overstuffed plastic bags gathering dust and little else.

Inside was a treasure-trove of evidence: 11,000 pages of handwritten notes listing nearly 4,000 celebrities, politicians, sports stars, police officials and crime victims whose phones may have been hacked by The News of the World, a now defunct British tabloid newspaper.

Yet from August 2006, when the items were seized, until the autumn of 2010, no one at the Metropolitan Police Service, commonly referred to as Scotland Yard, bothered to sort through all the material and catalog every page, said former and current senior police officials.

So far we’ve got an attempt to bribe NYC police, phone hacking of thousands of individuals, and a cover up including payments (made by James Murdoch) in return for silence. I’m not going on about any of this. How it hurts journalists. How three pillars of democracy, the press, the government and the police are here amply demonstrated failing to uphold standards which, on any other occasion, they are more than happy to boast of like a general and his chestful of ribbons. There is plenty of comment out there on this already, and more’s to come. My question is broader.

Where are the shareholders?”

The theory of corporate ownership goes that any offense egregious enough to society will inevitably rouse the shareholders to demand accountability and enforce enough self-regulation that the business entity never goes too far. Well, the NotW shareholders didn’t know, and fine, I don’t believe they did. However, senior editors and corporate officers did, and withheld this vital information from those who are ostensibly the “owners.” In case you’re wondering, News Corp shares have trended downward in the last few months, and though beginning Thursday, volume rose to about three to four times normal volume for News Corp, the price has remained flat. Even though one major outlet has closed, the lucrative BSkyB deal has collapsed, senior management is leaving in disgrace, the FBI is considering a probe (my guess is that this won’t happen, after all, 2012 is near, it would be spun as a politically motivated investigation, and we’re talking Eric Holder), and with the distinct possibility that more senior management will be tainted by what will be uncovered by the continuing UK investigation. The pattern of trading is also indicative of an artificial prop on the price: overnight the sellers rule, but by day there are enough buyers to stop the fall.

So we’ve a mismanaged company, probably dipping into cash reserves and/or entailing debt to maintain share price and what do we hear from the shareholders?


Milton Friedman went on and on about choice and freedom, and that the market will solve all. He was fond of asking what the greatest good might be, to the extent he advocated abandoning America’s national park system to private developers. Likewise, Alan Greenspan was “shocked” when he learned that the housing bubble went on uncorrected for years by that same free market (as though he never heard the words “bubble market” in his life). The fact of the matter is that large, wealthy investors need your 401k contributions to prop up their profits. They need the punters like those who call in to Cramer’s totally ridiculous show to participate, even though they’ll most certainly lose, because they’re gambling, and as long as they win, they’ll keep playing, (the perfect term for this) until they lose and cannot afford to play any longer. Practically none of these people are capable of understanding, or interested in enforcing issues about corporate governance and good corporate citizenship even though these investors are risking their money on the good intentions and sound judgement of corporate officers and management. None of these risks are ever mentioned in the popular business press, either.

I once listened to a conference call BP held with major investors and business journalists stenographers after the Deep Horizon disaster. Every question concerned how this would affect the bottom line, the shareholders, and it seems natural so. BP’s CFO led the discussion, and he certainly would have answered that he wasn’t equipped to field those questions. Fine. But again, where were the shareholders? Where were the Lehman shareholders? The Enron shareholders? Global Crossing’s shareholders?

The theory is that they’ll act, but they never do. Many would say that’s not their role, even though their portfolios ride on these issues. Headline risk is real, and it’s going to become more commonplace as whistle-blowing becomes more prevalent, which I predict it will. Hundreds of thousands of corporate managers are out there, running with very little constraint, as well as benefiting from the culture of impunity operating at those levels.

And politicians. Peter Oborne, writing in the Telegraph, describes the incestuous relationship between the press and Parliament. We certainly can feel safe assuming that the same dynamic applies in Washington (after all, we’ve Judith Miller, Michael Gordon and a host of others don’t we?):

The effect on government policy was wretched. Decisions were determined by consideration of the following day’s headlines rather than sound analysis. Furthermore, private favours were dispensed; Blair when prime minister spoke to his Italian counterpart Silvio Berlusconi about one of Murdoch’s business deals in Italy. Of course it was all kept secret, though details did sometimes leak out. All recent prime ministers have insisted that their meetings with Murdoch were confidential and did not need to be disclosed, as if they were somehow private affairs. Mercifully, Cameron – who has partially emerged from the sewer thanks to his Commons statement – has put an end to this concealment.


The system of collaboration between an over-mighty press and timorous politicians is being exposed. There is hope that we can return to a more decent system of government; that Parliament can reassert its rights, and that ministers will make their decisions for the right reasons and not simply to ingratiate themselves with Murdoch and his newspaper editors. Perhaps the sickness that has demeaned and distorted British politics for the last two decades is at last being challenged and confronted.

During the HCR process, Joe Scarborough asked one of his guests the question whether that person thought free market insurance providers were worse than a government program, and he asked it in such a way to indicate that you’d have to be a deranged baboon to disagree with him, but anyone who looks at the rot at the core of unregulated business, not held accountable by their own “owners,” the effect this has on managers who know they’ll get away with practically any corruption and that all are essentially immune to redress, and you have to wonder who’s deranged. The track record of American stateless businesses in the last fifteen years is clear, and everyone knows that it’s not a few bad apples. We know that this is not merely the beginnings of a trend, but nothing serious because the system is sound.

Because the system is secret, politically biased, personally corrupting, not held accountable, opaque and therefore most definitely unsound. It ignores every negative externality in favor of ROI, and I can think of only three people in Washington who are prepared to ask the questions on this level. None of them are Washington players, and that right there should speak volumes.


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