Syntagma Digital
Editor, John Evans

Deep, long world recession now likely

As we’ve been saying here in Syntagma for some months, a long, deep worldwide recession now looks more likely than not. Opinions are hardening among key players, principally in America and Britain.

Davos, Switzerland
Davos : the great and the good are assembling here amid world crisis

Yesterday, the Wall Street Journal proclaimed : “U.S. warning signs point toward deep recession”.

Most economic analysts regard the stock market as an early indicator of economic conditions in a year or 18 months time. London’s market has lost more than 13 percent of its value in just three weeks. Wall Street was closed yesterday, but will doubtless catch up today.

The current consensus is that 2008 will be bad, but 2009 could be much worse. The second decade of this century may resemble the 1930s in the worst-case scenario.

Problems continue to pile up. Banks have been writing off around 14 percent of the 2006 batch of collaterallized debt obligations (CDOs). This percentage is currently being upgraded to 19 percent, ensuring more pain to come. The total exposure by banks could be as much as $500 billion.

Making matters worse, the insurance companies, or Monolines, that underwrite possible defaults, are also in trouble, with two of the biggest in the U.S. said to be close to Chapter 11 status (a form of bankruptcy protection against creditors).

Moreover, the very banks relied upon to rescue Western institutions, like the Bank of China, are also said to be exposed to the U.S. sub-prime slice and dice fantasy.

Another crushing problem — now endemic in developed countries — is the level of personal debt. A typical person now spends one-seventh of their income on debt repayments, compared to around 10 percent a decade ago. In Britain alone, household debt is running at an unprecedented £1.4 trillion ($2.75 trillion). Add to that the massive levels of public spending in recent years and it’s clear this can’t be sustained for much longer.

The principle of “moral hazard” means that sooner rather than later everyone has to face up to their debts and start paying them off. There are no lenders out there now who will aggregate them at a lower repayment level. The adjustment to lower debt levels is desperately needed.

Unhappily, it will represent very hard times for many, some very poor indeed, and a massive writedown of Western assets, many transferring to Asia. The loss of that income in future decades will materially affect the West’s ability to dominate as it has done in the past.

Many businesses are also going to be in deep shock this year and next. Those that survive will have low levels of debt, and shares in safe hands — not bankers, buyers or lenders who are desperate for cash to rebuild shattered balance sheets.

So, is a recession a good outcome or is it as disastrous as it seems? On one level it’s totally disastrous, especially to those innocently caught up in the credit crash. It’s also bad for the reason that we’re being pulled down by voracious greed. Greed by the banks for giving NINJA morgages (no income, no job, no assets) and then selling them on in bits and pieces. Greed also by the banks that bought them. And greed by consumers in running up such heavy debts in the good times, leaving little to repay them in the bad.

However, this can also be seen as a necessary correction to a self-inflicted train wreck. Moral hazard demands a reckoning. Our Faustian deal with the Devil has a repayment package at its fulfilment. Soon, we will know the worst.

Update : The Fed has just cut American base rates by an unusually large 75 basis points or 0.75 percent, a sign that Bernanke is serious about taking a machete to rates to head off a recession.

The White House has also indicated the President may increase his upcoming fiscal stimulus (tax cut) from the $150billion already announced.

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Journalism or blogging?

City of London A few years ago, when I headed up a marketing department at BT (British Telecom), I asked a Sunday Times tech journalist, whose work I admired, to write a short piece on packet switching (the base technology of the internet) for one of our publications.

When the copy arrived I thought it must be a joke. The piece was full of spelling mistakes and basic grammatical errors. I was shocked by the lack of pride in craftsmanship — although technically it was correct.

If I tell you it was only 300 words long and the asking price (agreed) was £300 ($600), you get some idea of my disappointment.

Naturally, I refused to pay — an office junior could have done better. The journalist pointed out that we had use of his name (true) and that he had sub-editors at the Sunday Times to knock his copy into shape. He then threatened that if I still refused to pay, he would get the National Union of Journalists (NUJ) to picket BT Headquarters.

The Honcho above me ordered me to pay him off immediately. The Chairman would be incensed to find pickets on his red carpet entrance.

Although I’d done a bit of freelance journalism for the nationals before then, it was my first real taste of in-house pros. I was not impressed. (I should point out here that I commissioned other journalists after that and many were just fine.)

Now to blogging. In my view, online writers let themselves down by taking pride in the wild and woolly world of blogging. There are some excellent writers in the tech blogosphere, some even write for the nationals. Jeff Jarvis (The Buzz Machine), for example, pens frequent features for The Guardian (UK). And there are many others. The distinction between print and online publishing is narrowing by the day. Print journalism isn’t disappearing, it’s just taking over more and more of the online space.

The description “blogger” has a certain cachet in the political world, because politicians, with lots to hide, are terrified of them. The mainstream media watches them like hawks in case they miss a scoop or some realtime dirt. But this is a narrow slice of a much wider market for news, commentary and on-the-spot reportage.

I have to say, there’s a bit of cultural cringe about blogging in general, especially among those who take themselves half seriously. The belief that mainstream journalists are necessarily better, or better informed, is not borne out by facts. In the tech sphere, for instance, online material is usually way ahead of the MSM in detail and accuracy.

Take the recent Wall Street Journal non-story on the “10th anniversary of blogging”. The reporter made a good stab at the topic but was no match for people writing online who had been in on it personally. Like most inventions, there’s a long incubation period involving different individuals who each put a piece or two in the jigsaw puzzle. But the editor seemed to want a nice crisp date, and a hero to parade before the world. There wasn’t one, so an obscure figure was dredged from the swamp of time and shoved into the limelight with mud still running down his face.

D’you know, I can’t even remember his name, poor devil.

Back to the tag “blogger”. It’s a well-known fact that in the theatre a tragedian is taken far more seriously than a clown. Sometimes that’s unfair, because the clown can have more talent, and entertain many more people.

By tagging ourselves as bloggers, we hand a monumental advantage to the print journalist. We can be dismissed as clowns and unprofessional bag carriers.

For the political thorn-in-the-side, it’s a smart move. For anyone who wants to be taken seriously by the big, rotten world, not only their peers in Techmeme, it’s not just shooting oneself in the foot, it’s aiming a silver bullet at the heart.

So let’s resolve to be writers, journalists, authors — not bloggers. Forget the medium, think the message.

As our lamented former Monarch, King George V might have put it, “Bugger blogging!”

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Dow Jones and WSJ sell to Rupert Murdoch

The Wall Street Journal is being sold to Rupert Murdoch’s News International.

Owners Dow Jones are reported to have agreed a $5 billion bid according to sources acting for the board. Negotiations have been completed and the board is confident the terms of the deal will be accepted by the Bancroft family, which controls a majority of voting shares in Dow Jones, over the next few days. A formal announcement is expected next week.

The Business Online exclusively reports :

Murdoch’s News Corporation will take over America’s most prestigious financial publisher at the price he originally offered on April 17, when he proposed $60 a share when the stock was trading at $36, a 67% premium … The arrangement is a tougher version of the one put in place by the British government when Murdoch bought The Times and The Sunday Times in 1981. Murdoch will have less control over the independent directors at the Journal than he does at Times Newspapers, where they are regarded as weak and ineffectual. But one source, acting for the Bancrofts, admitted privately that the Dow independent panel was only a “fig leaf” to facilitate the sale and that over time Murdoch would get round it.

With Murdoch reportedly ready to do a deal to take over a chunk of Yahoo! in exchange for MySpace, things are getting very interesting down at the billabong.

Update: Wired is reporting a refutation of this story : “An article published on this morning stating that an agreement in principle has been reached for the sale of Dow Jones & Company to News Corp is incorrect.”

Heads up Robert Scoble.

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Google Builds Ad Exchange

With internet advertising increasing rapidly, the need for a big player to step up to the plate and provide a Big Ad Lite service has become obvious, especially to users of weblog technology. Now Google is moving into this marketplace and, as with Adsense, it’s likely to set the standard.

The Wall Street Journal reports :

The biggest Internet companies, including Microsoft Corp., Google Inc. and Yahoo Inc., are focusing attention and money on the emerging business, hoping to be first with the kind of large-scale, dynamic market for the ad industry that the Nasdaq market brought to stocks. […]

Today, online publications and Internet companies have space for display ads built into their Web sites. Typically, that space gets filled with ads either the old-fashioned way — through a salesperson — or by a mix of computers and people called an ad network that automatically sells ads for the spot. But a significant portion of the available ad space — called “inventory” — remains unsold, or is sold for next to nothing. Enter the exchanges, which use automated systems to match buyers with sellers of unsold space.

This is good news for a significant swathe of small online businesses stuck between the vast mass of “blogs” beneath and the bigco websites above.

If Google can come up with an automatic solution as simple and seller-friendly as Text Link Ads, with geo-location and other factors built in, it will take mass advertising on the net to a new level. It will also improve the bottom lines of small-business digital networks beyond recognition.

Google’s buy-out of DoubleClick provides the platform. This could be the most exciting development for online business in years, taking advertising from professional operators to ordinary publishers on the shop floor.

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