A reader named Frosty840 points out that, if you thought the idea of a good old fashioned "book burning" had gone out of style in the US, a group of offended individuals in Wisconsin are petitioning the local library for permission to burn its only copy of a book called Baby Be-Bop. A book burning? Apparently it hasn't occurred to these offended folks that (beyond the disgrace of wanting to burn books they dislike), this entire action has only served to call a lot more attention to that book. The folks asking for the right to burn the book, are also demanding $120,000 for "being exposed to the book in a library display," which seems likely to (again) only drive much more interest in the book. A book that can cause that much damage? Where can I get my copy?
We've talked in the past about how one of the causes of the financial crisis was that many banks on Wall Street stopped acting like banks and started acting like hedge funds -- despite not really knowing how to do that. That is, they took on much greater risks and higher leverage, without having much of an understanding of how to really hedge that risk. That was fine when all was going well, but when the bubble burst, it started impacting everyone.
Now, in a combined effort between NPR's Planet Money (I know I've said this, but I'll say it again: if you're not listening to this every day, you're missing out, big time) and the NY Times, reports are coming out about how it went well beyond banks turning into hedge funds, to all sorts of other organizations as well. The scary example being described in the first article in this series is how a Wisconsin school board and the NYC subway system, both effectively became hedge funds, lending money out to various banks in exchange for CDOs (collateralized debt obligations). What a CDO is, effectively, is the mashing together of a variety of different debt instruments (loans) that pay out some sort of return. So, you could basically buy some of the return on a whole mess of loans, packaged in all different ways (some amazingly creatively).
If all of those debt instruments that you're buying into keep on paying, you're in good shape. If, however, there are defaults, you can be in an awful lot of trouble. However, while everything was going great, defaults weren't an issue and the folks sold on these CDOs often had no idea how risky they really were. In the article above, for example, the guy who sold the Wisconsin school district on investing $200 million of its pension money in CDOs had only taken a two hour course on them, and greatly downplayed the risks.
And, of course, to make matters even worse, in many cases, the actual risks of such CDOs were hidden through some games, and made worse by either clueless or complicit ratings agencies which rated seriously high risk CDOs as being extremely safe bets. To see a rather graphic (and easily understandable) example of this, I recommend the following Paddy Hirsch video comparing CDOs to pyramids of champagne glasses:
The really scary part was that, effectively, you had numerous less than fully sophisticated investors, dumping hundreds of millions, if not billions, of dollars into incredibly complex investment vehicles that they were being falsely told were extremely safe, when the facts are that they were highly risky. Many pension funds and the like allocate a certain small percentage of their investments into high risk vehicles -- but the financial crisis is being caused in part by the realization that a much, much, much larger percentage of their investments actually turned out to be in seriously high risk vehicles, many of which have now defaulted.
Romenesko points out that the Madison Capital Times, in Wisconsin, is not just putting more emphasis on its internet operations, but it's also cutting back on the print paper to the point of only coming out with a printed paper twice a week. Reader Joel also sent this in, saying: "A newspaper's web site gets its credibility from the daily publication. Without that it's just another news web site, and anyone can put up a web site. I think they need a reputable daily publication, even if it sells poorly and loses a little money, to give the web site legitimacy." I mostly agree, though, if you can successfully do news just online, paper could be a pretty big waste. However, in this case, it's unclear what benefit the "twice-a-week" strategy really provides. It will probably upset those who really liked reading the physical paper each day, and will do little to attract new readership. If they wanted to really bet on the web, why not make the bet complete? Going halfway by making the paper version less valuable doesn't seem all that compelling.
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