CNBC is Irresponsible

Jeff Feldman wrote this letter to the editor of the New York Times in response to an article in entitled, CNBC Thrives as Hosts Deliver News With Attitude.

The editors chose not to print the letter, so here it is:

Unfortunately, CNBC delivers more than news with attitude. It delivers analysis with bias. And it delivers that analysis incessantly in real time. I have been on Wall Street for 40 years and was there in the late 1970’s when we went through a period as difficult as this one. If you wanted business news back then, you had to work for it. There was almost none on television, nothing more than stock prices on the radio, and most newspapers did not have a business section. The business magazines provided information that was weeks old by the time they hit the newsstands. I was an analyst at the time, which meant I was analyzing what had happened (generally six months earler because of the lag of data) -- not prognosticating what was about to happen. Contrast that with CNBC’s real time analysis and the pundits constantly telling us what will happen next. The problem is that investing is not a collegial activity -- it is a competition! If too many people act on a prediction, the prediction is less likely to come true. If too many people engage in the same strategy or take the same side of a trade (see the last 5 years), it can’t possibly work.

As to Jim Cramer, some of what he does is truly educational. He should stop there and not make stock recommendations. The height of absurdity is his “Lightning Round” in which callers throw out a stock name and he opines on it. He prefaces the round by explaining that he has no advance knowledge of the callers or the stocks they choose. This is represented as preferable to the alternative, where he would know the stocks in advance and have time to research them and provide true insight. He also might know something about the caller so as to determine if the investment is suitable. Can you imagine a doctor giving medical advice the same way? “ I have no advance knowledge of the caller or the ailment. Let’s go to Joan in Indiana. What ails you Joan?” Would anybody accept medical advice in this way? Do we want to go back to the days of medicine shows and Wolcott's Instant Pain Annihilator?

Is money any less valuable or important than health?

The banks and the mortgage brokers have been called out for being irresponsible for putting their interests ahead of and in conflict with the marketplace. The same is true of CNBC.

CenterpointProperties Wants to Run Virginia Ports

Monday's Financial Times highlighted how one company, CenterPoint Properties is interested in infrastructure investment -- notably ports. At one time, private infrastructure operators tended to be from Europe, such as Spain's Grupo Ferrovial. Perhaps this could be a new area of growth for American companies.

An article entitled, Developer proposes to take over Virginia port operations explains the potential deal:

A property developer has asked the US state of Virginia to let it take over its ports in a sign of continuing private interest in publicly owned infrastructure.

Chicago-based CenterPoint Properties announced the proposal on Friday under state laws that let private companies make unsolicited approaches for state-owned assets. CenterPoint said it would provide $8.9bn total value to the state over a 60-year concession.

....There had long been speculation that Virginia might seek a private investor in the ports’ operating arm to fund other transport investments.

Cash-strapped states have grown increasingly interested in attracting private infrastructure investment to offset budget pressure from growing health and education spending.

One quibble with the story. As someone who did graduate work in geography (on waterways infrastructure) Center Point Properties is not based in Chicago. It's offices are in Oak Brook, a western suburb of Chicago, better known as the home of McDonalds.

See map below:


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MBAs are looking for Green Jobs

Monday's Financial Times (9 March 2009) had a story by Della Bradshaw entitled, "Opportunities Shine Amid the Gloom," about how MBAs are looking for work in the energy efficiency, clean tech, and smart grid sectors.

Part of this demand is that (A) Wall Street is not hiring (B) Banks that take TARP money have restrictions on hiring new foreign workers if they have fired workers recently.

Senator Charles Schumer (D-NY) wishes to overturn the restriction.

Let's just hope all those MBAs won't make the mess of the green industry that they did to finance.

Martin Wolf on the Seeds of Financial Destruction

Martin Wolf in the 9 March Financial Times, in an article entitled Seeds of its own Destruction discusses how the recent financial crisis --or crises, it's hard to keep track -- has called into question much of the accepted wisdom about markets.

He also echoes a theme discussed in this blog, notably the dangers of financial engineering.

How did the world arrive here? A big part of the answer is that the era of liberalisation contained seeds of its own downfall: this was also a period of massive growth in the scale and profitability of the financial sector, of frenetic financial innovation, of growing global macroeconomic imbalances, of huge household borrowing and of bubbles in asset prices.

The growth of a financial sector that was not tied to aiding other industries, but only to helping itself, raises serious questions about the role of finance in the economy. Yes, people want to, and need to, make money, but what does that investment get us? During the past few years, were these powerful forces of finance used to develop and fund breakthroughs in the green sector, healthcare, and infrastructure? You know the answer. If they had been, perhaps we would be a lot closer to clean power, improved medicines with fewer side effects, and safer and greener transportation systems. Instead, governments throughout the world are trying to prop up banking systems loaded down with toxic assets that the banks have no way to value -- and no incentive to value. If banks had to honestly value many of those assets, they would have to make even larger writedowns on their balance sheets than they are doing presently.

Never confuse a financial engineer with a real engineer. Paul Volcker in a recent speech mentioned his disappointment that his grandson, who had a great aptitude for mathematics went into financial engineering.

And what have those financial engineers been doing for the past decade? According to Wolf, they've been innovating.

Throughout [the past decade], the financial sector innovated ceaselessly. Warren Buffett, the legendary investor, described derivatives as “financial weapons of mass destruction”. He was proved at least partly right. In the 2000s, the “shadow banking system” emerged and traditional banking was largely replaced by the originate-and-distribute model of securitisation via constructions such as collateralised debt obligations. This model blew up in 2007.

We often think of innovation as good. And in many ways it is. Innovation in astronomy made us realize the earth was not the center of the universe. Innovation in medicine took us away from bloodletting as a cure and brought us vaccines and antibiotics. Financial innovation brought us the collateralized debt obligation (CDO) and the credit default swap (CDS). And that brought us the worst financial crisis since the Great Depression.

Destitute pea pickers in California. Photograph by Dorothea Lange.

From the Farm Security Administration-Office of War Information Collection at the Library of Congress.

Jon Stewart skewers CNBC

For better or worse, I don't own a TV, so I don't have the distinct pleasure of having CNBC or what the money manager and author of Greenspan's Bubbles, William Fleckenstein, refers to as bubblevision distracting me. It also means I don't have my daughter wondering who is that man having temper tantrums on TV?

Still, CNBC, and its personalities, are not that well known outside hard core viewers, until Rick Santelli launched his now famous rant at the Chicago Mercantile Exchange. Then, Jon Stewart, of The Daily Show, struck and showed how satire can again be one of the most incisive tools to understand a phenomenon -- and how CNBC helps make its viewers poorer.

The Daily Show With Jon StewartM - Th 11p / 10c

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Free Drug Free Drug Samples May End Up Costing The Uninsured

Those free samples patients get from their doctors may be very expensive in the long run, especially for the uninsured, according to a study last fall from Wake Forest University

WINSTON-SALEM, N.C. – Free drug samples provided to physicians by pharmaceutical companies could actually be costing uninsured patients more in the long run, according to a study done by researchers at Wake Forest University Baptist Medical Center and colleagues.

The retrospective study looked at the prescribing habits of more than 70 physicians in a university-affiliated internal medicine practice in the months immediately before and after the closing of their drug sample closet. The results indicate that the availability of free samples from pharmaceutical companies greatly impacts whether an uninsured patient is given a prescription for a generic or a brand-name drug.
The complete findings can be found in the September 2008 issue of Southern Medical Journal.

“It’s true that samples can save patients money in the short-run,” said David P. Miller, M.D., lead researcher and internal medicine physician at Wake Forest Baptist. “But our study shows that they may end up paying more in the long run when they are given prescriptions for brand-name only drugs.”

Read more here.