Four Months After he Announced His Departure from Newsweek – On Facebook – Steven Levy is WIRED for Sound
By Kyle Austin
Back in March, we broke news by confirming the rumors that Steven Levy was leaving Newsweek for Wired. Well, he actually broke the news by posting it on Facebook – we just happen to be his “friend.”
Four months later, after penning his final column for Newsweek last month, Levy is now working from his desk in Wired’s New York offices. We managed to steal his attention (for a few minutes at least) while he caught some air.
Racetalk: Steve you officially announced your move to Wired on March 21st – through Facebook no less – after more then 12 years at Newsweek. It was reported at the time that Wired wooed you with a huge book deal to go along with your move. What was the biggest decision behind your move?
SL: The book deal and the Wired job were independent. I had been thinking of doing a book about Google for a while and finally figured out how to do it. Around that time Newsweek offered buyouts to people who had been there a certain amount of years, and I qualified. I had been talking to Wired previously about making the move, and the timing seemed ideal. I had a great run at Newsweek, and now I’m looking forward to more long-form journalism.
RaceTalk: So you answered my next question. Google is the book project – Why?
SL: Google is a fascinating company and I hope I can explain why.
RaceTalk: Fort the most part – PR folks like myself didn’t waste our time bothering you at Newsweek unless we were going to connect you with Bill Gates or Steve Jobs – what will you be looking for from PR pros at your new job at Wired and what main beat will you be pursuing?
SL: If you didn’t contact me for that reason, you made a mistake (You contacted me on OLPC and I responded). I am lucky to have long-standing relationships with some significant figures in the industry but am always looking for up and comers — and just good stories in general. Basically my “beat” hasn’t changed — Wired is devoted to the range of subjects I covered at Newsweek — but I will have a chance to get deep into stories. I’m also doing a front of book column that’s more consumer oriented, so I welcome early news of breakthrough gadgets and stuff (I do mean early–I’ve got a longer lead time to deal with).
RaceTalk: You’ve contributed to Wired for more then a decade as a side job to your regular gig at Newsweek. Sounds like you’ll keep a similar role there?
SL: My job is a writer and my hope is simply to do great stories.
RaceTalk: I was always impressed by your ability to elevate technology stories for mainstream audiences and understood which technology stories had the potential for serious social impact. Do you think you will have to move away from covering those types of stories now that you are at a pub that is more targeted on tech specific issues?
SL: Well, take the “Future of Reading” story I did for Newsweek about the Kindle. Can’t imagine Wired wouldn’t want to do something similar.
RaceTalk: Where will you be based for your new gig? I know you have been spending more time in Silicon Valley but will you be making your residence there or will you still be working at large from your home office?
SL: I will be working out of Wired’s New York City office.
RaceTalk: What do you see as the biggest trend currently happening in consumer tech? Is it the touch-screen phenomenon that Apple has spawned or perhaps something larger like the transition towards greener cconsumer tech products?
SL: Everything, from multi-touch to social networking, stems from the increasing power and ubiquity of computation, storage and broadband. It just gets juicier.
RaceTalk: Finally, is just me or is it somewhat ironic that Newsweek has pegged Fake Steve Jobs (UPDATE: At press time Fake Steve Jobs is now Dan Lyons) to take your old beat after you literally trashed the MacBook Air in one of your final columns for the magazine? Should we look for journalistic revenge from Fake Steve?
The new set-up will divide profiles into different tabs – one for the wall, info, photos, notes, etc., and appears ready to handle the additional content that’s on the site from the many applications that have been created. This new layout will hopefully give users added security measures. My personal hope is that we’ll be able to select entire tabs to be private, or parts of the limited profile.
Facebook really seems to have the leg up on MySpace when it comes to its ability to design a clean and user-friendly layout. This new profile should not only create the appearance of having more content on the site, but also enable Facebook to add more outside content to the site. Users are currently able to post articles, videos, etc. to their profiles, but it seems like this tab layout could be the beginning of users being able to monitor all of their communities through one source.
Supposedly, Facebook members can preview their new profile layout by going to www.new.facebook.com, but I have been unable to get through the site yet.
Here is the much overdue second part of my discussion with Wilson Rothman. If you missed part one of our conversation a few weeks back, check it out here. This part of our conversation focuses on Denton’s pay-per-view model, bloggers interaction with their readers and his quick take on GizmodoGate. I’ll post the third and final part of our conversation later this week (UPDATE: I made the “rookie” journalistic mistake of recording over the last part of our conversation on my tape recorder. Hence, this is all folks - until I meet up again with Wilson the next time I’m in New York).
Racetalk: How have things changed since you started using the pay-per-view strategy after using the pay-per-post strategy?
WR: There are some changes. I liken it to TV ratings. Our business is such that we can see how we do every day, every week or even every minute. You can slice it up how ever you want it. It’s much like TV ratings and we have the same push and pull that TV people are often accused of. That meaning, how much you play towards what the audience wants versus playing the role of prescribing what the audience needs to know and see.
You get to this level where sometimes you play to populist – Sex is an easy sell, Apple is an easy sell, Lego and Star Wars. There are obviously some things that are easier to sell to readers then others. The bloggers that are paid by per-click’s know that if they start pandering too much they are in trouble. A) Hyped topics burn out too fast. If you’re just playing to a fad like Steampunk – well guess what, Steampunk is played out. So you can’t do that anymore. You have to look for another fad. You’re cool hunting essentially.
People have really made a bigger deal out of the model change then it actually was because people’s pay checks haven’t changed a lot.
Racetalk: It seems like a smart decision on a business level. The major print publications like BusinessWeek now have directives from the top down to make sure there is user engagement with each online article. They are going after advertisers, leveraging the engagement statistic attached to each article.
WR: I will say this. My “Gadget of the Week” column for Time.com suffered because there were no comments enabled. The only reason I knew my traffic numbers was because I was friends with the tech department. It wasn’t because I was supposed to or even allowed to know. I had to track it all informally. They didn’t know what they were doing and they didn’t know how to monetize something that was actually one of their biggest money makers. The joke was, no matter how dry the advertising season was there was always an ad on my page. There’s no secret to that, that’s why Gizmodo and other technology sites do well.
So with no comments for my TIME column, I would get these nasty emails from Apple fan boys. You make one mistake (I’m talking typo, not a factual error), and you have 400 fan boys telling you - ”You’re an idiot.”
Getting it in an email you can’t gauge the intensity of it. If you have it in the comments you can quickly see what the errors are. Sometimes it’s just a typo and we can change it quickly. They also can’t be total jerks to you when they are commenting publicly, because there is a Gizmodo community. In other words, if someone is really mean to a writer on Gizmodo, there are three people that will jump on that person in the comments. Or they get banned, which isn’t fun for anybody. There is more of a community aspect.
RaceTalk: That leads me to another question. Forrester put out this study a few weeks ago on “How to connect with Bloggers.” There was this one interesting question on there “If you had to choose only one source of information about a product before purchase what/who would it be?” Those that answered indicated that the first place they’d turn (33%) was “A recommendation by a friend or family member” and number two was “A consumer review or rating posted by someone like you.” It sounds like you guys are position nicely with this finding based on your friendly connection with your readers – more connection with them then you ever had at TIME.
WR: I feel a connection with my readers. Yes, once you get into this you realize the futility of doing the print thing. I worked steadily at Money magazine through my first eight months at Gizmodo and this December I resigned. I had worked with them since 2004 doing service journalism pieces. It got to a point where people are changing stories or tweaking things without any idea what kind of feedback there was. It’s like now, I put up stories or round-up reviews where people say, “This is bad, here’s why.”
I take that into consideration and I’m like wow I just got a critique. You get feedback and it’s constructive even when they are hostile. Look, if 100 people are hostile in comments to you – you don’t ban 100 people –I screwed up. If 90 of them are nice and 10 of them are hostile, really hostile, well then you may ban them.
RaceTalk: Speaking of banning. I guess I have to ask you about GizmodoGate and what happened at CES and the blow-up that followed it. Do you have a position or opinion on what happened there?
WR: What I have to say first and foremost is, I had no knowledge of it and I wasn’t involved with the actual prank or the posting of the video in anyway. It was a decision made by other people that had the right to make that decision. I think most people know that. It’s not in my character and it’s not really my thing.
With that said, I also have to say that we have not seen any significant backlash from it. At least from our readership.
RaceTalk: There was some talk that you were banned from CES?
WR: I was at a CEA event a few weeks ago and I’ve been invited to another panel. I don’t know what their final decision is. I feel like they can’t punish all of us. There are a lot of us here and I don’t think we should all be responsible for a prank – carried out by a few people.
My favorite show on TV right now is “Mad Men” on AMC, which returns with Season Two on Sunday, July 27th. There I got my shameless plug out of the way. The Golden Globe winning show (It should garner several Emmy nods on July 17th) that still plays host to a relatively small audience because of its home on AMC, chronicles the “Golden Age” of 1960′s advertising.
The show’s star Donald Draper (played by Jon Hamm) is the Creative Director and Partner at the fictional 1960′s Madison Avenue shop “Sterling Cooper.” Throughout the first season Draper illustrates an aptitude for pulling ideas out of thin air to win over his prospective clients during presentations. However, the Season 1 finale really provided us with Draper’s “Kodak Moment.”
In the clip embedded above (Update: YouTube disabled embedding of clip) , Draper is asked to fit Kodak’s new “Wheel” slide projector into its product marketing and a potential advertising campaign. I’ll let you judge for yourself; but let’s just say it leads to one of his colleagues leaving the room in tears and the Kodak executives left to pick their jaws off the floor.
That’s followed by the classic line from the Head of Accounts Duck Phillips (played by Mark Moses):
“Good luck at your next meeting.”
Yes, it’s a little over-the-top Hollywood dramatization, but tell me it isn’t the pitch we all dream of? If only Madison Avenue was this relevant today…..
As I log into Facebook each day and quickly read through my “news feed” to see what my friends are doing (much like how “normal” people read the daily paper), I’m noticing a trend. These days news feeds are also populated by advertisers and products that want to update me on free ice cream at Ben & Jerry’sor new candy from Mike & Ike’s (Facebook’s targeted ad system must have me mixed up with a sugar-comatosed eight-year old boy).
However, I’m also noticing that a leading Web company is advertising on Facebook. You may have heard of them before, they’re called Facebook. Yes, as confusing as I made it sound, Facebook is advertising their own ad network in most user’s news feeds. My 17 year-old sister, for one, also has the image I posted above popping up in her news feeds with supporting text that says, “80 million users strong. With Facebook’s highly targeted ad system, how will you connect them? Learn here now.”
That my friends, does not equal the likelihood of a high Click-Through-Rate (CTR). I love my sister to death, but her current understanding of advertising -and interest in it- solely revolves around the latest Prada bag she bought thanks to what she saw in Cosmo.
Why to begin with is Facebook advertising its Ad Network to everyday consumers? Wouldn’t they be better suited to target the advertisements to users in the industry that actually have control over advertising budgets (or even work for a company in my sister’s case).
It really points to the bigger problem that Facebook has. Its targeted ad systems just isn’t that targeted. The company is on the right track in creating social advertising but the holy grail of the next generation ad network will be intelligently engaging in brand discussion with the right group of segmented users. Facebook needs to find a way to better target their advertisements so advertisers (including themselves apparently) will know that their product/advertisement will be recommended to a certain % of consumers that have a high likelihood of buying the product or service.
It’s all about CTR’S, which are created by getting relevant ads in front of interested users. Until they can figure this out, they might want to stop advertising their ad network all together.
With the U.S. Olympic Trials for track and swimming now complete, it’s a good time to look at how the Olympic Games are affecting China. Besides the protests surrounding the conflict with Tibet and the massive tourism increase that China will see from the Olympics, some Chinese citizens will also be out of work for a couple months.
According to The New York Times, the city of Tianjin (located about 70 miles east of Beijing) has ordered 40 factories to suspend some operations for two months in order to improve the air quality during the Olympics.
The details around these closings are very unclear, and don’t address whether or not these workers will still be compensated for the time their factories are closed. In either case, I’d be shocked if China was prepared for everything that has happened so far as a result of hosting the Olympics, and wouldn’t be surprised if there’s many Chinese leaders that would have preferred to avoid this altogether.
2. Internet privacy has become an issue and China has had to ensure the Olympic Committee that it would allow all athletes and media to have full internet access during the games.
4. Some of China’s factories have to close down in order to decrease the pollution around the Olympic sites. The pollution is so bad that some countries are worried about bringing their athletes to Beijing too far in advance of their events.
Can you imagine running a marathon in that city with that much pollution? What’s your take on China as the Olympics quickly approach?
Happy belated 4th of July! Do you realize that it now takes 2 cents to make a penny? Well almost. 60 Minute’s ran Morley Safer’s segment on the economics of making pennies for the second time this Holiday Weekend (It first ran in February). In which, Morley reports that due to the price of copper tripling in price -it now costs the U.S. Mint $134 Million to make $80 Million in pennies.
Stephen D Levitt, the author of Freakonomics, is ready to put the penny to rest for good, noting in the segment that “it’s just not useful anymore because of inflation.” Still others argue that if we got rid of the penny, retail outlets will inflate prices to the nearest nickel.
The Washington Post owes Politco 2,000,000 Pennies: If you’ve been following the road to the White House online, it’s likely that you’ve spent some time on Politico. Former Washington Post (WaPo) reporters John Harris and Jim Vandehei started the online political destination two years ago after WaPo turned down their idea. Politico has been a landmark success and in May it reached nearly two million unique visitors (See chart below courtesy of Compete.com). So it’s no surprise that the WaPohas reconsidered the idea of a political only online destination. However, according to Gawker, when they went to purchase their preferred domain name “PostPolitics.com” they found it was already purchased (If you type it in now you are redirected to Washington Post’s Post Politics page). By who you ask? Those former employees that broached the idea with them two years ago. In addition, to being a head scratcher for the WaPo Editor-to-be (Perhaps former WSJ Editor Marcus Brauchli), it cost the paper $20,000. As someone once said, “Revenge is a dish best served cold.”
Fox News vs. The New York Times:
Right before the Holiday break media gossip sites began chattering about the latest illustration of Fox News’ professionalism. On July 2nd Fox News’ Fox & Friends, co-hosts Steve Doocy and Brian Kilmeade went after New York Times reporter Jacques Steinberg and his editor Steven Reddicliffe for a June 28th Times‘ piece on cable ratings, that the hosts labeled a “hit piece” on Fox. Their segment could have been accepted as a gentle media rebuttal if Fox News didn’t take it a step too far (seems they have a knack for this) by including digitally altered of photos of Steinberg and Reddicliffe in the segment. The alterations to Steinberg’s photos took the most notice – with his ears being pulled out, forehead being lowered and his nose enlarged & widened (I’ve imbedded the video of the segment courtesy of MediaMatters.org).
I’ve written about Fox News sensationalist approach several times. The most recent time, I presented trends in production and on-air interviews that I believe could alienate them from potential guests. However, David Carr of the New York Times brought to light another issue with their news organization today. His piece spotlighted the Steinberg and Reddicliffe incident as part of a broader story on the organizations media relations’ tactics.
Carr Likens the tactics of Fox News to the public relations’ apparatus of a political campaign, which is run from the top down (i.e. Roger Ailes, Chief Executive of Fox News). He points to several examples -outside of the latest incident- where Brian Lewis, the head of Fox News public relations, and other PR executives there have threatened they would “go after” reporters, blacklist them and publicly smear them in blogs if non-favorable stories were published. While Mr. Lewis denied the existence of a “blacklist” in Carr’s article and stated that it makes their lives difficult when on-air talent goes after reporters; he did acknowledge that they are very aggressive in what is often a passive PR industry.
With their current practices eliciting fear in reporters (like those illustrated below in the excerpt from Carr’s piece) I’m scratching my head wondering how many “friendly” reporters they have left? That Fortune cover story from Tim Arango seems like it ran light-year’s ago.
David Carr in today’s New York Times:
“Like most working journalists, whenever I type seven letters — Fox News — a series of alarms begins to whoop in my head: Danger. Warning. Much mayhem ahead. Once the public relations apparatus at Fox News is engaged, there will be the calls to my editors, keening (and sometimes threatening) e-mail messages, and my requests for interviews will quickly turn into depositions about my intent or who else I am talking to. And if all that stuff doesn’t slow me down and I actually end up writing something, there might be a large hangover: Phone calls full of rebuke for a dependent clause in the third to the last paragraph, a ritual spanking in the blogs with anonymous quotes that sound very familiar, and — if I really hit the jackpot — the specter of my ungainly headshot appearing on one of Fox News’s shows along with some stern copy about what an idiot I am.”
I’ll give you a penny (or two) for your thoughts on Carr’s assertion and the fate of the penny.
RaceTalk recently connected with Lewis Cunningham of EnterpriseDB while attending the Xconomy Forum: The Promise and Reality of Cloud Computing, and he graciously agreed to answer some of our (many) questions about cloud computing – for example, why is this technology creating so much buzz, who are the players to watch, and which applications and companies will benefit most from jumping into the cloud?
Q: As cloud computing is a term that continues to be developed, how would you describe the cloud? How does it differ from SaaS?
A: You’re right that it continues to be defined. Ask 10 people and you’ll likely get 10 different answers. I think the best way to differentiate them is to look at the use case. When you use a SaaS, you are truly using a service. It might be CRM, ERP, or any other type of service. It may allow you to customize the experience, change colors, add a logo, etc, but you are still using a service.
Cloud computing lets you decide what you’ll be running. In the case of Google, you get an IDE and you write your program. It can interact with all of the Google services (mail, documents, maps, etc) via APIs. With Amazon, you load an operating system and your choice of tools. You’ll run whatever applications you chose to run. If you have applications on aging hardware, it might make sense to migrate them to the cloud and never worry about hardware again. If you’re already running those applications on Linux or Unix, the migration can be exceptionally painless and satisfying.
Technically, SaaS runs within a cloud computing architecture. SaaS is just one cloud application. As a business, you might write your own service in a compute cloud and then sell that to world at large as a service. This is where Platform as a Service (PaaS) comes into play (think force.com).
Q: What are the benefits of adopting this technology? What about cloud computing has made this an attractive option for EnterpriseDB?
A: The obvious benefit is the low cost of entry. If you have an idea, you can get started for pennies. In the past you needed computers, someplace to house the computers, power for the computers, etc. Now you can click a few buttons and have robust server up and running. No purchasing or configurations delays. If you later decide the idea is not working, you can turn off the virtual server. The only money that you are out is the money you paid for actual use. You really can’t beat that.
In addition to massive cost savings, you get a potentially faster time to market. While your competitor is working those purchase orders and getting things configured, you’re already up and running. You can also scale faster and easier. Before the cloud, you were either constrained from scaling by available computing power or you had to have extra hardware resources sitting idly just in case you needed to scale. Now you let your infrastructure provider provide that capability and only pay for what you use.
The cloud is attractive for EnterpriseDB because, while cloud computing changes where the database will run, it doesn’t change the fact that a database is still the most critical component of any real application. It’s always about the data. EnterpriseDB is an early adopter of the technology and we’re learning quite a bit working with some of our customers in this space.
Q: At the Xconomy Forum, you said that your company was currently in Beta testing. Can you speak a bit to the work you are currently doing, and some of the preliminary results you have found (storage, cost gains, etc.)?
A: Well, we are still in Beta and we have mutual non-disclosure agreements with many of our customers so I can’t tell you very much specifically. I can say that we have had excellent feedback and just about everything we’ve heard has been very positive.
EnterpriseDB is not planning on being a cloud provider. We don’t plan to compete with the likes of Google or Amazon. We plan to build strategic partnerships with companies that are the experts in the cloud. Elastra was our first big partnership in this area. You can read more on the elastra site here.
Q: SD Times recently named EnterpriseDB and their Postgres Plus products as the leader in enterprise open source databases. How will EnterpriseDB’s business model map onto cloud computing?
A: I was excited to see that SD Times chose us. Linux Magazine named EnterpriseDB one of the top 20 companies to watch in 2008, we were a finalist in the Jolt Product Excellence Awards and, of course, IBM has chosen to invest in us. It has been a great year for EnterpriseDB all around. I can’t say much about the specifics of our cloud business model. I better leave that to my CTO, Bob Zurek, and the rest of the EnterpriseDB executive team. I believe there will be an announcement on that topic in the near future.
I can talk about what I see in general in the industry. It looks like the cloud providers are sticking with pay as you go as are some of the service providers like Elastra. Other third party vendors, including some management tools like Rightscale, are moving to a subscription model. I think Rightscale is currently $500/month at the low end but they provide a complete solution for dynamic cloud computing (using Amazon).
Q: Are large enterprises ready and willing to move into the cloud? Do they have a choice?
A: Of course large enterprises will always have the choice to run everything in house. They have the capital, the skills and the space to host a large number of servers. In a large enough environment, this can make sense. They’ll actually save money in the long run by making intelligent use of virtualization. This is especially true if they have predictable scaling needs.
Are they willing? Everyone I speak to is at least interested. It’s still a new buzz word. Businesses are still very concerned with SLAs and security. At a minimum, I think every size enterprise is poking around trying to decide what it can for them and where it might make sense. That’s where short sessions like the Xconomy forum are very useful. I got a lot out of that session.
Q: Which applications will benefit most by leveraging the large amount of computing capacity and data-processing ability found within the cloud? Is cloud computing best for large companies with big data centers?
A: The applications that will benefit the most are, and the quickest, are small, niche web applications. Applications that feed on or to Facebook, MySpace, Linkedin, Twitter and any other platform with a huge number of users. Get a viral hit and scale from 10s to millions in a few days. You can call that the Animoto story.
Large companies with big data centers won’t want to throw away their investment any time soon. However, they can actually launch their own private cloud. Their internal developers can get the usefulness and scale up of the cloud but run it all behind a firewall. Personally, I think private cloud computing will be a big part of the future cloud landscape. Once the cloud building technology advances to a point where a non-Google or non-Amazon can implement it, the cloud will become a purchasable software component just like an operating system. That’s in the future though.
Q: Amazon was an early pioneer in cloud computing, boasting services such as Amazon Simple Storage Service, Amazon SimpleDB, and the Amazon Elastic Compute Cloud that manage large amounts of computing volume. However, Google has the largest infrastructure, with over a million servers deployed. Who is the one to beat and are there any competitors you believe will soon be able to compete with these services?
A: Google and Amazon have taken two very different approaches to cloud computing. I think the Amazon approach is the most expandable and is useful to a broader array of users. However, Google’s approach is very attractive to those who want to spend a minimum amount of time in the OS. Time will tell but both approaches are very useful for the right use case. My time is spent mostly with Amazon right now.
Q: Salesforce.com, Microsoft, Yahoo and IBM are all also making moves in the cloud computing space. Who is a company to watch and what do you believe will influence companies to adopt cloud computing services?
A: The cloud is a big place and there’s plenty of room for everyone. I have no doubt that both IBM and MS will have a major impact on the future of cloud computing. Force.com is already out and it putting a new spin on the cloud.
Don’t forget, though, that it’s not just the big guys who make the market. Keep an eye on Elastra, Rightscale, 3tera, GoGrid and any number of smaller players. It’s these folks who are making the cloud easy enough for any business to adopt. Amazon and Google are both easy enough for the technicians to use but these third party vendors are making it easy for anyone to use.
And make sure you keep an eye on EnterpriseDB. We’re built on open source, compatible with Oracle and available in the cloud. Three for three!
Since eBay has become the world’s online auction site, there have been some pretty crazy things auctioned off online. In the past, people have auctioned off bellybutton lint, human teeth, and a slightly used body-bag. Even Manny Ramirez has gotten into the action and auctioned off his grill, which later turned out not to be his.
Well, Australian resident Ian Usher added to this list of weird auction items this week when he decided to make his life open for bidding. After his five-year marriage ended, he held a week-long auction for everything in his life, which included all of his belongings, three-bedroom home, his friends, motorcycle, a jetski, and a trial-run at his job.
Usher must have been disappointed in the result, as collective eBay bidders deemed that his life was only worth $380,286. The buyer is reported to have a 100 percent feedback rating.
What’s the weirdest thing you’ve ever seen being auction off online?
However, none of these stories portrayed the potential hand that CNBC had in the fall of Bear quite like Bryan Burrough’s piece for August’s Vanity Fairentitled “Bringing Down Bear Sterns,” which is now on newsstands.
Perhaps Burrough, the author of the heralded book Barbarians at the Gate: The Fall of RJR Nabisco, needed a new angle. Or perhaps, he’s actually intrigued by the behind closed door dealings between news outlets and PR executives. Either way, his story is the first to spotlight Bear’s P.R. man, Russell Sherman and CNBC reporters in the final days of the Bear Stearns’ collapse. The result is a fascinating read and if you’re a media junky like me; you can’t put it down. Anyone with experience in working with the different producers at CNBC can understand the situation that Bear’s was faced with and the cautionary tale that Burrough’s tells highlights the high stakes of crisis management communications.
Here’s Burrough’s introduction of Sherman in the piece:
Bear’s P.R. man, Russell Sherman, heard the rumors, too. As the stock continued to slide, Sherman began calling reporters, trying in vain to pin down their source. As he did, Molinaro (Bear’s CFO) checked to see what could be fueling the rumor. Bear itself had no liquidity problem—he knew that. That morning the firm sat atop $18 billion in cash reserves. Molinaro checked with his finance desk, the repo desk, his treasurer. Had anyone heard of anything like a margin call (in which a lender was demanding a huge chunk of cash back)? A trade gone bad? Was anything out of the ordinary? “Across the board, it was ‘No, no, no, no—no problems,”’ a Bear executive says.
The Huffington Post excerpts from the Vanity Fair piece and highlights the rest of the CNBC / Bear Stearns’ story here:
How Repeating Rumors Makes Them Fact
At Bear Stearns, no one was laughing. Publicly speculating on a firm’s liquidity is akin to shouting “Fire!!!” in a crowded theater; in catastrophic cases it can trigger panic selling. It risks, in other words, becoming a self-fulfilling prophecy.
For the next hour the Bear Stearns rumor became a topic of conversation between CNBC correspondents and various market traders and analysts. At 1:50, Matthew Cheslock remarked, “The sentiment [on Bear] is pretty negative. The general consensus is ‘Where there’s smoke, there’s fire.”
A few minutes later, Griffeth, perhaps sensing the network might have gone a bit too far, asked Dennis Kneale, “What about the jittery nature of this market right now? Are we starting to believe some rumors that may or may not be true?” Kneale agreed. “Someone,” he observed, “is always making money on the other side of that bad news or that rumor.” Yet CNBC’s coverage remained anything but skeptical of the rumor. At two the network’s new “money honey,” Erin Burnett, headlined the hour by announcing “credit issues at Bear,” never mind that there was no such thing. She turned to correspondent David Faber, who observed, “Of course, no firm’s ever going to say that they are having trouble with liquidity, and, in fact, you’ve either got liquidity or you don’t. So if you don’t have it, you’re done. Those are the kinds of concerns in this market, concerns of confidence You can have crises of confidence, causing meltdowns.”
Managing CNBC Egos
Sam Molinaro felt it was time for another public assurance. CNBC’s Charlie Gasparino had been peppering him with phone calls seeking comment. Molinaro talked to Russell Sherman, who felt Gasparino could be played. “He’ll say something negative if you shut him out. But if you talk to him, he’ll go positive,” one Bear executive told me. Around three, Molinaro spoke to Gasparino, telling him, “I’ve spent all day trying to track down the source of the rumors, but they are false. There is no liquidity crisis. No margin calls. It’s all nonsense.” Gasparino’s on-air comments were mild, but for the first time he raised the specter of a nightmare scenario: “They are really worried about this inside [Bear], that these rumors are taking a very nasty turn, and they might cause a run on the bank.” Still, by day’s end, there was no rush among Bear’s lenders to withdraw cash from the firm. At that point, this executive says, “the notion of a liquidity crisis seemed silly.”
That night Schwartz, Molinaro, and others discussed what to do. The talks centered on whether Schwartz should go public in an interview with CNBC. “We debated putting Alan on the air a long time,” says one board member. “Yes, it might draw attention to the rumors. But it would definitely answer the questions. Our view was: we had to get him out.”
Schwartz, though, wanted some assurances first. From experience, he knew he faced a risk in picking the wrong CNBC correspondent for the interview. All the network’s talent–Gasparino, Maria Bartiromo, Faber, Larry Kudlow–had requested the interview, and whoever didn’t get it, Schwartz feared, might retaliate on the air. “Each of these correspondents has his own producer, and they all seem to hate each other,” one Bear executive told me. “If you choose Faber, you know Bartiromo will bash you the next day.” Schwartz directed Russell Sherman to identify the CNBC executive who supervised the correspondents, explain the situation, and ask that the correspondents who didn’t get the interview refrain from attacks. Sherman, however, couldn’t identify a single CNBC executive who seemed to have control over the correspondents. “Everyone on Wall Street knows the joke,” says another Bear executive involved in the discussions. “At CNBC, there is simply no adult supervision.”
The Deadly Interview
Faber’s first question was a bombshell. He told Schwartz he had direct knowledge of a trader–a single trader–whose credit department had held up a trade with Bear Stearns, citing concerns about its health. At Bear, many executives gasped. It was a killer statement: Faber was saying, in essence, that Bear’s status as a trader, the basis of its business, was in question. Schwartz answered as best he could, saying everything was fine; only later did Faber say on-air the trade in question had finally gone through. But the damage had been done.
“You knew right at that moment that Bear Stearns was dead, right at the moment he asked that question,” a Wall Street trader of 40 years told me. “Once you raise that idea, that the firm can’t follow through on a trade, it’s over. Faber killed him. He just killed him.”
