We can have our ink-stained wretches, and a cup of coffee.

Some would say that newspapers are stuck in a death spiral, or that “print is dead,” or that “information wants to be free.” So, maybe its not time to party like 1999.  But newspapers have choices.  They don’t have to die.  They can try something new, instead.

I like what the Schenectady Gazette is doing this week.  They are asking readers to pay for online (more…)

KingOfthePaupers made an interesting comment yesterday about Tuesday’s entry, California: Take our Dollars (IOUs), Please.  He commented that

“there’s nothing wrong with small denomination municipal or California State IOUs if anyone can pay their taxes with them.”

It is a point that deserves some attention.  If California is saying that these IOUs are valid, then are they valid (more…)

The mortgage crisis dominates headlines these days.  It is the main focuses of these entries.  That said, there is another problematic trend that is somewhat related to poor lending decisions.

I am talking about newspapers.  For years, people have been expecting print to succumb to the advantages of electronic news delivery. The differences are dramatic.  Newsrooms are probably guilty of not changing with the times.  They are somewhat insulated, and their lack of new readers reflects that.  Newspaper readership is getting older and older.  The obituaries and stock quote listings remain popular for a reason.  Circulation reflects the loss of relevance, or the loss of content. Oh, and craigslist didn’t help.

Content is a problem, too.  Young people find fewer and fewer reasons to subscribe to a paper.  A few years back, when I returned to graduate school, I remember realizing that I was the only person in our cohort who subscribed to a paper.  Twenty years ago,  a group of late 20 early 30-year olds with a college education and an interest in civic life would have had a different reaction.  Most would probably have a paper, some, perhaps two subscriptions.  So, the papers weren’t cultivating new readers.  Simultaneously, job cuts meant that papers were getting thinner and thinner.

Less content means less readership means less revenue means less content….

Our local paper was sold in 2005.  It had been a family operation.  Now, it is owned by Paxton.  Paxton immediately cut about 15 positions.  There is less coverage, less news, less content.  They do not have a business reporter on staff.  This is always a nail in the coffin.  People won’t pay for a product that keeps getting weaker.

Finance has a role in the downfall, nonetheless.  A few years back, the newspapers suddenly seized on the idea that they could enhance profitability by achieving new scale, particularly in back office functions.  The idea was that circulation could work out of one office, for readers in say, Dayton and Atlanta.  Or for readers in Sacramento and Raleigh, I suppose.   Except that this was way off the mark.  It turned out that newspapers were fundamentally a local enterprise.  Surprise!  Local reporting, local readers, service from another state.  What’s incongruent here?  Imagine calling a phone bank in India to put a vacation hold on your paper.  Well, that’s sort of what they envisioned.

With the vision of new profits, banks went on a buying spree.  You will remember that Knight Ridder was purchased by McClatchy.  Times Mirror was purchased by Tribune.  Tribune later sold Newsday, acquired in that deal, for $650 million, to Cablevision.  Thomson shed its newspapers, selling them to Cox.  Lee Enterprises bought Howard.  Lee bought Pulitzer.  In a smaller deal, Ottaway (since 1970 a part of Dow Jones) sold four papers to Community Newspaper Holdings.  The rest of Ottaway became part of  News Corp , when in 2007, News Corp bought Dow Jones.

At the time, the public was less concerned about the impact this would have about the ongoing viability of the model.  Some did complain about the lack of diversity of opinion.  The people at the FCC appeared to have no problem with it.  So, there is another similiarity – regulators put their faith in markets, in spite of citizen protest.

These turned out to be awful deals.  Tribune, having paid $8 billion for Times Mirror, recently wrote down the value of its acquisition by approximately $3.8 billion. It has filed for bankruptcy protection.  Cablevision wrote down about more than half ($402 million) of the value of Newsday.  Lee is almost bankrupt as well. In 2008, it took write-downs of $1.4 billion on its recent spending spree, and another $180 million at the end of this year. The list goes on and on.

Where is all of this heading?  Well, our civic life is going to suffer.  Citizen blogging may have its place, but it is hard to imagine that it will be the same.  Where will the revenue streams appear to support the number of reporters (skilled) that print once employed?

Like a lot of Americans, these papers have more debt than they can handle.  Many newspapers never should have gotten the financing for these acquisitions.  Lee is a classic example – they are still witnessing an operating profit, but debt service is killing them.  KPMG may not be willing to certify them as an ongoing concern.  We’d still have our papers.

There isn’t going to be a TARP for newspapers, though. They are going to pass on.  Non-profits might emerge.  Certainly, Poyntner has done a great job in St. Petersburg. We’ll see.

The House of Representatives will hold a hearing on mark-to-market accounting, potentially as soon as next week, according to CNBC.

Leaders from the SEC and the FASB are going to testify.  Last January, the SEC issued a report calling for the continued use of mark-to-marketing accounting.  Specifically, they sought to defend FASB 157, the new wrinkle added in Nov. 2007.  That report sought to develop simplified ways of handling financial investments, particularly deriatives and distressed assets.

This could be the most positive, no cost to taxpayers solution out there.  There are a lot of bank stocks that are seriously undervalued because of mark-to-market accounting.  In mark-to-market, financial statements have to count the value of assets and liabilities by the price that they would fetch on the open market, currently, to a willing buyer.

Right now, most things would end up going for distressed prices.  Yet fundamental values could be higher.  Its a problem if a firm wants to hold on to a financial asset, waiting for a better price.  The firm has to let is financials reflect the current poor price.  This can damage capitalization ratios and lead to some of the widespread troubles that are plaguing banks right now.

The impact spills over into the broader economy, because provoked by fear of writedowns, banks are less hesitant to relinquish their capital.  This is one of the forces that leads banks to not lend.

Solving it would free up capital and potentially jump start our economy.

Some firms have a huge gap between their share price and their book value. Look at American Capital ( ACAS.)  This firm has a book value of approximately $15 per share.  Its stock is selling for less than a buck.  American Capital’s CEO, who had loans from ACAS collateralized against homes he owned, had to go into foreclosure.

It appears that cash is the key principle in more and more real estate deals.  Today’s Wall Street Journal reports on a disquieting trend where lenders are turning down buyers willing to pay much higher prices, on the condition that they get financing, in order to take under-market cash prices.

In one instance, a lender turned down an offer of $179,000 contingent upon FHA financing in order to take a cash price of $133,000.  The borrower was a first-time homebuyer.

In some markets, particularly in Florida, all cash deals account for more than 60 percent of all sales.  The article also mentions that lenders are requiring 50 percent down on some condo loans.

Part of what motivates people is a sense that distressed real estate represents a better investment than equities or bonds, even after factoring in the opportunities for leverage.

Time to Pay Off your Mortgage?

This same thought may also lead many existing homeowners with plenty of stock market wealth to consider buying down or even paying off their mortgage.  The conventional wisdom is that this is a poor choice, because with tax benefits, investors can usually beat the borrowing costs with a mix of equities and bonds.  The first trade-off is that these owners give up their deduction on home mortgage interest. The payback definitely includes some peace of mind.  Living debt-free is highly appealing, and knowing that you have a secure home over your head is a great way to feel better in any recession.

Then again, doing means that a borrower with a mortgage paying 6 percent interest is probably getting an effective rate of return of at least 4.5 percent.  It’s a guaranteed return, as well.  That is hardly dramatic, but its a prospect that looks a lot better than many other investment opportunities available out there right now.