For a preview of the future of business journalism, read the Dec. 8 Wall Street Journal Page One article "Hedge Funds Hire Lobbyists To Gather Tips in Washington" by Brody Mullins and Kara Scannell. (A slightly abridged version was reprinted in the same day's Pittsburgh Post-Gazette.)
Lobbyists, who usually work the back alleys of power to advance or stall legislation, are increasingly shaking down members of Congress and their staffs for potentially market-moving information, the piece reports. They, in turn, advance that information to their "political intelligence" clients—private investors, private-equity funds, investment banks, and hedge funds.
"There are a lot of savvy investors who have realized that there is a lot of money to be made from what Congress does," says lobbyist-lawyer Elliott Portnoy of Sonnenschein Nath & Rosenthal LLP, whose political intelligence division has two dozen clients and a staff of 18. Examples of market-moving news chased on Capitol Hill by lobbyists include the future of legislation on asbestos liability, Internet gambling, and new regulation for Fannie Mae and Freddie Mac. Political intelligence outfits charge hedge funds and others as much as $20,000 a month for their "tips and predictions," according to the Journal.
What political intel units do seems indistinguishable from what newspaper reporters do, except that their wealthy clients pay much more and fewer readers get to see their product.
But does that make it journalism? If you regard what the Wall Street Journal, Business Week, Forbes, Bloomberg News, Reuters, the Financial Times, and Fortune do as journalism, you call the political intel reports anything but high-priced, low circulation journalism. Like the Wall Street Journal, the political intel groups exist to give their clientele an information advantage over the competition that will translate into profits.
The first journalism marketed both financial information and political intelligence. In the 15th and 16th centuries, the Fugger banking family established a network of correspondents throughout Europe to keep tabs on local business, Chris Roush writes in his new history of business journalism, Profits and Losses: Business Journalism and Its Role in Society. Correspondents filed the prices of goods and services to the Fuggers, who then used the information to set the price of loans. The family's business newsletter alerted its exclusive clientele to a wide array of commercial, exploitable news, including the "deaths of kings and queens, wars, the arrival and departure of ships, the burning of the exchange in Antwerp, executions, and the demise of the Spanish Armada," Roush writes.
Even the mass-circulation Wall Street Journal owes its origin to the information demands of a wealthy few. Roush notes that three reporters named Charles Dow, Edward Jones, and Charles Bergstresser launched Dow Jones & Co. in 1882 "to sell news and gossip items to stock brokers, bankers, and speculators." A few years later they started the Wall Street Journal, "a four-page newspaper devoted solely to stocks and bonds."
As a business news operation gets better at distributing information—i.e., building circulation—a strange thing happens to the value of information collected. Only the first readers who receive and act on the information can profit from it. For example, the Wall Street Journal provides a rich data dump six days a week, but it's futile for all 2.7 million readers to act on it, because the commercial advantage is quickly harvested.
The circulation successes of business publications are only one force driving lobbyists to practice journalism. Every new government rule or regulation forcing businesses to become more transparent in their financial reporting and disclosure comes at the expense of Wall Street veterans and benefits the civilian investor poking around on the Web. As the business-journalism arms race spirals outward, the painfully rich must dig even deeper into their pockets to pay for their precious tips. The pricey, limited circulation business newsletter gets outflanked by the ultra-expensive Bloomberg terminal delivering the news instantaneously. You see the pattern.
If early intelligence on unfolding legislation is as valuable as the Wall Street Journal article makes it out to be, then maybe The Politico, the soon-to-be-launched third newspaper of Capitol Hill (and home to Jim VandeHei and John Harris), isn't such a bad idea.
What other fields contain a trove of unreported, market-moving news? The Journal explains that the greatest hedge-funds interest is in government actions that will have a financial impact on a small number of companies, such as which airline will win the new daily nonstop flight to China from Transportation Department regulators and what the timetable is for FDA approval of a new drug.
A few years ago, my friend Dirk Olin, now editor-in-chief of JudicialReports.com, tried to interest his employers in funding a news operation that would track market-moving litigation. He hypothesized that prospective readers could make profitable adjustments in their portfolios based on, say, granular reports about motions to stay filed in liability lawsuits.
They passed. I'll bet he could find an investor today.
Pretty soon the lobbyists will be chasing news with tweezers and micrometers. Send your nomination for a potentially lucrative political intelligence beat: firstname.lastname@example.org. Thanks to Dan Gross for his coaching. (E-mail may be quoted by name unless the writer stipulates otherwise. Permanent disclosure: Slate is owned by the Washington Post Co.)
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