Sox First

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Is Warren Buffett nuts? He's buying newspapers now. Associated Press reports that Buffett is buying 63 newspapers from Media General for $142 million. His company Berkshire Hathaway is also lending $445 million to Media General, which it will use to pay off debt. In return, Berkshire is getting the 19.9 percent stake in Media General and a seat on the board. Buffett says newspapers have a future if they continue delivering information that can't be found elsewhere. They also need to stop offering news free online, he says.

This sounds crazy because it's in complete defiance of all the predictions that newspapers are finished. Commentator Clay Shirky says newspapers will disappear because the economics don't add up anymore. He says they will be replaced with a whole lot of experimental models. No one knows what the future holds. "For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the journalism we need."

But then, it makes sense when you realise that Buffett is not actually buying big national newspapers. That would be stupid because they're haemorrhaging money. What he's buying instead are small, but profitable, community newspapers. As Eric Wemple points out in the Washington Post, they are close to their communities and generate exclusive content. It's not a commodity, not the sort of stuff you can get on Google News. And according to BusinessWeek, Buffett paid a pretty cheap price for the assets, about four times earnings. For that sort of outlay he would get a nice return.

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What happens to Greece when it leaves the European Union? We says "when" because it looks inevitable with Citibank rating the odds of Greece exiting the Eurozone, a Grexit, at 50 to 75 per cent. Steven Englander, global head of forex strategy at Citibank says: "Our economists say the risk of a Greece exit is between 50% and 75% although they are talking about it in the next year or so. I think the market is beginning to reconcile itself with the risk of a Greek exit."

A Greek exit will create a massive black market. As reported here, 25 per cent of Greek business already operates outside the law which means there is lots of scope for shenanigans. efx news reports that as all the deposits in the Greek banks will be re-denominated in the Drachma, the official Central Bank's exchange rate will be completely different from the de facto exchange rate in the black market. That will mean massive losses for ordinary people living there.

It could also result in a coup. Sav Savouri, chief economist at London-based hedge fund Tosca Fund is warning that we could see a coup in Greece, driven in part by the growth of that black market. "The elderly and the infirm simply can΄t feed themselves, the black market expands to proportions that you don΄t see in Europe, the young professionals leave in their droves," he said. "You΄re left with a collapsing civic society, and in every instance where that΄s happened, the military will take over the role of government."

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Remember the $2 billion JP Morgan trading loss? It's now $3 billion, reports the New York Times. It's happening because every hedge fund in the world knows JP Morgan is stuck. It's in so deep that that it can't unwind it. So the hedge funds are doing what hedge funds do: they're betting against it.

The Christian Science Monitor makes the point that the banking industry's risks remain at least partially untamed by new laws or managerial self-discipline. In other words, we're going to need stricter laws.

The point is that three years after we had a crisis that nearly toppled the US financial sector, JP Morgan is playing the same old game. All the talk in Washington and Wall Street is now about "risk" and "regulation". The bottom line however is that Wall Street's behaviour is just as dangerous as ever.

CFO.com says that JP Morgan's strategy was based on poorly conceived notions of hedging, a concept where you are basically insuring against losses by, well, hedging your bets.

Now just think about it. Hedging is not supposed to produce billion-dollar losses, that's why we call it "hedging." But what JP Morgan was doing was hedging for profits, not to counter losses.

Barry Ritholtz, editor of The Big Picture, puts it bluntly: "Any trade so huge that it impacts its markets – that becomes the market – cannot be credibly thought of as a hedge. Simply stated, once you are the market, you are no longer a hedge. Sheer size of this trade makes it far more accurate to describe this as speculation than hedge."

All this shows nothing has changed. JP Morgan and its counterparts at Goldman Sachs are still placing their monstrous heads-I-win-tails-you-lose bets as they were in 2008. Non-consenting US taxpayers will be the ones picking up the bill. And no one is stopping them.