BuzzMachine

We’ve just played the highest stake game of guess-the-number: The market was thinking of a number and the government was supposed to guess it. Lehman folding? Bzzzt. That’s not the number. Bailout of money market funds? Bzzzt. Think higher. $700 billion to buy toxic loans? Bzzzt. Wrong again. Buying equity in banks? Ding-ding-ding, you win!

Why wasn’t the government better at listening to the market? Did it ever ask what it should do?

That’s not the way government thinks. But it’s the way it should learn to think. There need to be systems to listen and expectations that we out here should speak. In a representative democracy, government doesn’t always need to act on what it hears. But now it can’t hear.

Government and regulation will need to be transparent and interactive in this, the Google economy.

In the financial crash, we are seeing two forces at work: first, a corrupt system of unregulated leverage gone mad — virtual value (which is to say, bullshit) created in derivatives — but second, a world whose fundamental structure is changing in ways we can’t yet fully fathom.

I can’t yet get my head around the new structure; no one can. So I want your help in cataloguing differences from a high altitude (and calm heart) as we figure out not only their dangers but also their opportunities and as we try to understand the new architecture of things.

I can’t help seeing this through the lens of Google, having just finished my book, What Would Google Do? Google is built for this new order - and not necessarily by design. That’s why I try to reverse-engineer Google to figure out what makes it succeed. I used those rules to re-envision various industries and institutions. Where do we land if we use them to reinterpret the ways of our world? Here are some of the laws I intuited:

* The link changes everything. We live in a hyperconnected world. Look at the financial crisis as a metaphor for what can happen in systems of information, news, commerce, regulation, education, culture, design. It’s not that one piece of information can spread fast; it’s that information is connected to information in interdependent and complex ways impossible to unravel.

But don’t see just the danger in that; see the opportunity. If we could build this tower of bullshit in derivatives through connections, what of worth can be built? Knowledge, wisdom (about, say, medicine), new understanding of the world (through data about our behavior)? And what efficiencies can be found because we can do what we do best and link to the rest?

* Atoms are a drag. Stuff sucks. GM could collapse into GMDaimlerChrysler (or eventually ToyotaTata). Nobody wants to be in the business of stuff anymore: building cars, printing newspapers, selling CDs, making gas, growing food.

The digital economy, Google’s economy, is far more appealing. In a sense it, too, is derivative as it creates value on such intangibles as knowledge and behavior. Except unlike financial bets, Google’s metaknowledge creates real value. There’s the other side of the coin of the virtual value that is tearing us down now - a way to build assets quickly and without dependence on and the limitations of stuff.

The reflexive response to this collapse of finance would be to return to the real: Buy real estate. No, not anymore. Buy into manufacturing. Nope, not now. Atoms aren’t safe. Dollars aren’t safe. Now the retreat has to be to knowledge of value.

* Small is the new big. On the one hand, big has never been bigger: Wal-Mart, $100 trillion derivatives markets, Google itself. But big is, more and more, made up of networks of smalls. Countless small retailers on eBay now make up a market bigger than our largest department-store chain, Federated. The long tail of culture (and the big butt to which it is attached, as Google’s Matt Cutts calls it) adds up to huge attention. Or, as I say in a law in the book, the mass market is dead; long live the mass of niches. We know this already and have discussed it here on the blog.

The added implication of the networked, small-is-the-new-big world today is a loss of control. A single CEO and board do not manage those commerce and entertainment markets. They are open marketplaces. And though marketplaces may have bad karma right now, that’s because they were manipulated by the few. Large, flat markets that can control themselves will be safer.

In business, we still need to reach critical mass. But we won’t do that anymore by buying up companies and going into debt to do so. Not gonna happen. No, we will reach critical mass by building networks: Google AdSense, eBay, Glam…. The key is no longer to control scarcity but to manage abundance.

* Be a platform. In an economy built on networks, you want to be a platform. Google is. It enables countless businesses to run thanks to its revenue (AdSense), its content (Google Maps), its functionality, (Google Docs), its services (Google App Engine), not to mention its distribution. Amazon has become a platform for businesses, first stores and now anything. Add eBay, Glam, Skype, craigslist, PayPal. They’re platforms.

In the book, I make a fanciful argument that a car company - any of the once-big three - could become a platform for more car companies to build atop it - if it came out with an open-source car. If it did, its capital needs and risk and labor and benefits coasts would decline; it could grow again without going into debt to do so. I have other ideas for what a car platform is. Universities should become platforms for aggregated educations. Doctors’ offices should be platforms for health. In this new world, you don’t want to own everything - indeed, if you’re like Google, you want to own as little as possible. Instead, you want to enable everything.

* Be transparent. We got into this mess thanks to opaqueness. At every stop along the financial trail, somebody was hiding something: homeowners their bad histories, loan sellers their bad loans, financial instruments their toxins, financial institutions their stockpiles of poison. The solution we hear more often than any other is transparency. If only we’d had - or rather required - disclosures, so much of this wouldn’t and couldn’t have happened. The tower of bullshit that is collapsing around us now was built on willful, wishful obfuscation and ignorance. Ignorance is both their indictment and their alibi.

Transparency will come through regulation: decrees that require financial institutions to reveal their holdings. But it will also come through the transactions themselves. That is what appeals to me about Prosper: I know who I’m lending to and for what. Prosper’s not going to replace Citibank (well, I didn’t think it could…). But Citibank has much to learn from Prosper.

I often say that transparency is a key ethic I learned online in blogs. This is just my symbol of it. Transparency is a system of trust and what we lack right now is trust. Transparency is the solution.

The ethic and attitude of transparency reaches into society and our lives. I say in the book that life is public now and so is business. Value is built now on being found - everybody needs a little Googlejuice - and on listening to the data our constituents create by their actions. Friendships will be maintained and built differently because of our new publicness.

* Give the people control and we will use it; don’t and you will lose us. I call this Jarvis’ First Law. It will become the law of the lands as we no longer have cause to trust our leaders in finance and business or government. We will not just demand control; the internet gives us the means to exercise it. Trust will not be restored from the top but from the bottom.

David Weinberger saw that when he decreed his own law:

* ‘There is an inverse relationship between control and trust.’ I come out of that saying that before the people can learn to trust the powerful, the powerful must learn to trust the people. They won’t get away with treating us like idiots who just wouldn’t understand derivatives and credit default swaps.

Return to my list of successful enterprises and you’ll see that many of them build platforms for trust: Google knows which sites we trust with our links and clicks and which are trying to spam it; eBay sets up the means for customers to anoint merchants with trust; Amazon learned that we will trust the opinions of fellow readers over reviewers; PayPal and Prosper help us to make trusted transactions. We don’t trust banks anymore; hell, they don’t trust each other.

* Don’t be evil. Why should it be surprising and rare - even amusing - that a company would make that vow as Google has? Shouldn’t it be assumed? No, it isn’t. And that’s a key to the mess we’re in: the bullshit was always someone else’s responsibility and that responsibility could always be passed on to the next and bigger fool.

Google executives say that they use their vow just to enable the question to be raised in discussions. Wouldn’t it have been wonderful if somewhere, anywhere, just one loan buyer or seller or financial institution had just asked whether knowingly buying and selling assets they now so freely describe as toxic would be evil?

There are more lessons from Google and its age that I explore in the book, such as our new speed. Life is live and mobs and problems can form in a flash. Middlemen are doomed by the direct connections the internet and Google make possible. Simplicity is an ethic; complexity is what masked our problems from us. To innovate and grow, though, we still need to make mistakes well. It would be a mistake to clamp down and outlaw every risk. It’s not the mistakes that matter so much as what you do about them. Life is a beta.

It’s dangerously short-sighted, I think, to focus on home mortgages and bank stocks to explain and solve this crisis and rebuild. I fear that we are seeing the implosion not of a bubble but of a void that is the fake value built into a $100 trillion market in derivatives that are nothing but gambles on margin. It’s a fiction and I don’t know how we find reality, how we erase perceived - only perceived - value that is far greater than every stock market in the world. But that’s the crisis. I don’t know how we will come out the other end.

I do know that when we come out the other end, we will see - or finally recognize - a different world. We have to see differently. When we do, we can build new value on platforms of openness, transparency, collaboration, networks, connections, knowledge, niches, abundance, trust, speed, and innovation. Success tomorrow will not be defined by controlling us - whether you are a bank or a cable company or an entertainment conglomerate or a politician - but by enabling us.

Our myth was that credit did all that, enabling innovation and growth. It didn’t. Credit was merely a tool.

The good news is that in web 2.0 - where you can build a useful application, product, and company on Google or Amazon or eBay or Etsy or open-source tools as platforms - you won’t need money and so won’t need credit and so you’ll keep control. You only need what you’ve always needed to succeed in a rational world: intelligence, insight, innovation, courage. That much won’t change.

Welcome to the Google economy.

My Guardian column this week is a columnization of the post I wrote last week rebutting Paul Farhi’s absolution of journalists in the fall of journalism. The point remains:

Here’s a first draft - sure to change - of a presentation I plan to give to open and set the table for the New Business Models for News Summit at CUNY. I won’t go through it lline-by-line that morning; I added more detail since I’m posting it here for your comment, correction, questions, arguments.

I should add that the conference is now oversubscribed for the space. Sorry.

NPR’s Planet Money podcast and blog is just great, almost as good as Adam Davidson’s and Alex Blumberg’s shows explaining our mess on This American Life. They’re now doing it daily. Highly recommended. (This American Life has another episode with more on the crisis but I can’t listen to it on my iPod until Monday because, presumably, they want people to happen to be near a radio when it happens to be on a local station. That’s no way to treat urgent news, folks.)

The latest episode of the amazing Peter Day’s In Business on BBC4 was also a special edition, recorded life (and podcast immediately). I wish they’d have him doing it daily now, too.

It strikes me that cable news is caught empty-handed in this crisis. They just don’t know how to cover a story like this - a story with depth. They know how to repeat over and over that the storm is coming or that the white girl is missing or that the politicians are sniping. But they don’t know how to understand and get us to understand as NPR and BBC4 are doing. They also can’t adapt to covering another story just as their favorite story, the horserace, is loping toward the finish line. Cable news is a big loser in the financial crisis.

The Wall Street Journal is a natural winner but now I wonder whether its strategy of breaking out past business news might be a loser. I never buy the physical Journal but I am now because other news outlets - notably TV - are giving me too little.

The Times is doing a decent job. I’m going to international sources - my Guardian, the Telegraph, the other Times, German sites I try to understand - to get more perspective. But so far, the winner in keeping me up to date is NPR because it fearlessly broke its own formats. This American Life is the last show that you’d think would be great at explaining complex news - until they do it. Radio should be the last medium at letting us get depth when we need it - until they start a podcast and blog.

If only I could buy shares in NPR.

The Museum of Financial History is selling bear stickpins for $60. I think I’ll buy one and just keep sticking myself with it. In more flush times (a week ago) I might have been tempted by this money doily for $800 but soon, money will come on rolls.

I bought Apple stock today (and, of course, dark touch that I have, it immediately went down a dollar). I figure it’s the patriotic thing to do. George Bush told us to go shopping after 9/11. Now it’s time to call the broker. (I called mine and, boy, did he sound depressed.)

Paul Farhi of the Washington Post issues a resounding apologia for journalists in the American Journalism Review, arguing that the fall of newspapers isn’t their fault. Then Roy Greenslade leaps up with a resounding hear! hear! They echo a defense earlier this year from Adrian Monck (who had decreed, “The crops did not fail because we offended the gods”).

Though I respect these three men, I must call bullshit.

The fall of journalism is, indeed, journalists’ fault.

It is our fault that we did not see the change coming soon enough and ready our craft for the transition. It is our fault that we did not see and exploit — hell, we resisted — all the opportunities new media and new relationships with the public presented. It is our fault that we did not give adequate stewardship to journalism and left the business to the business people. It is our fault that we lost readers and squandered trust. It is our fault that we sat back and expected to be supported in the manner to which we had become accustomed by some unknown princely patron. Responsibility and blame are indeed ours.

Farhi’s rationalization on behalf of his fellow journalists makes many bad assumptions and blind turns and Greenslade only follows him down those alleys, piping in with (my emphases follow) an “unhesitating answer” of no to accusations of journalistic guilt. “There cannot be any doubt that journalists themselves … cannot be held responsible for either the financial woes of the industry nor for the public turning its back on the ‘products’ that contain their work.” He piles on: “They are blameless.” They have “no reason to feel guilty…. It isn’t our fault…. The truth is that we are being assailed by revolutionary technological forces completely outside of our control…. We journalists are not [his emphasis] paying the price for our own (alleged) failures…. you are not the cause of the current calamity.”

The hack doth protest too much.

Farhi assumes that a newspaper is a well-defined product that is no longer supported by classified and retail advertisers and that’s not our fault. He acknowledges that newspapers should be updating their sites, adding Twitter, social networking, Google Maps, and more video. But he ignores the greater need and opportunity to rethink and reinvent journalism itself.

The internet does not just present a few glittery toys. It presents the circumstances to change our relationship with the public, to work collaboratively in networks, to find new efficiencies thanks to the link, to rethink how we cover and present news. No, the essence of the problem is that we thought the internet represented just a new gadget and not a fundamental change in society, the economy, and thus journalism.

By maintaining the newspaper and its newsroom as essentially static entities, Farhi also makes the common and dangerous assumption that their budgets are also fixed: They are what they are because they always have been and so that’s what they need to be. So it’s not their fault that they need to be supported at that level. But newsrooms are terribly inefficient and too many of their expenses were fueled by ego. We bear business responsibility. That is why I am teaching business in a journalism school, so we can be better stewards.

Farhi glosses over — in an unjournalistic way, I’m afraid — the state of the business and its relationship with its public. He brags that almost 50 million Americans still buy papers and so, he argues, readership is not the issue. But circulation is down more than 14 percent since 1970 and since then population has risen by 50 percent, so the adjusted loss is 74 percent. If steady, circulation should be 92 million today. Penetration is roughly half what it was: a mere 17 percent vs. 30 percent. I’d say our relationship with readers is a problem — in more ways than one: A Gallup survey says 52 percent of Americans do not trust news media, up from 30 percent in 1972. Are the two tied? Of course, they are. Who’s responsible for that?

“The critics have it exactly backward,” Farhi says. “Journalists and journalism are the victims, not the cause, of the industry’s shaken state.” Victims? As Farhi says to the critics, “Oh, please.”

Victimhood is an irresponsible abdication of responsibility, a surrender. He might as well declare newspapers dead: Oh, well, we did our best, but everybody around us fucked up and so they’re going to go away now. How dare they do this to us?

My purpose in rebutting Farhi and Greenslade is not to beat up journalists but instead to empower them. The reason to take responsibility for the fall of journalism is to take responsibility for the fate of journalism. Who’s going to try to save it if not for journalists? We are indeed responsible for the future of journalism and we have about one minute to grab that bull by its horns.

(This is why I am holding a conference at CUNY on new business models for news. There is not a minute to waste.)

Heh. A bunch of movie critics in the UK are whining that Disney used blurbs from real people in ads for the movie The Boy in the Striped Pajamas. Welcome to the future critics: We’re all critics now. It’s particularly funny to me that critics consider blurbspace theirs. How dare a movie studio quote the people who actually buy the tickets and watch the movies? How dare they give respect to the audience?

I will confess that when I was a critic, I got pissed when I was blurbed without mention of my name. But there was only one reason for that: ego.

(While I’m at it, another blurb story: I was TV critic at People and complained in my column about a “pinhead” at NBC who had taken my review quite out of context to turn a negative review into a positive blurb. It was something to the moral effect of this: I said the show as an incredible piece of crap and the blurb said, “Incredible!” Anyway, when my putative partner in the launch of Entertainment Weekly went to Hollywood to push the magazine before its launch, he met with an executive at NBC who announced that he was my “pinhead.” He was not amused. I was.)

Drop everything and go listen to the latest This American Life, a followup to its brilliant Giant Pool of Money show, which explains the bailout and the bigger mess we’re in better than I’ve heard or read anywhere. Alex Blumberg, Adam Davidson, and Ira Glass have done it again — brillliant once more.

But first, you might want to lock away your belt, shoelaces, and for that matter, the cord to your iPhone headset. But you’ve probably taken those suicide-watch precautions already today given the apocalyptic, 10,000-busting day on Wall Street. Well, if you listen to the show you’ll at least understand better why we’re so fucked.

It turns out that the problem isn’t the giant pool of money. It’s the giant pool of debt. And I don’t mean our debt, legitimate debt used to buy houses and cars and finance startups and roads and send kids to college. I mean fake debt. Davidson and Blumberg explain the debt swap market and how it became an utterly unregulated $60 trillion marketplace — that’s more, they say, than all the money in all the stock markets in the world — built on no collateral or real value. It’s leverage, they call it. Ponzi scheme is another way (my way) to look at it. Giant pool of nothing is another way. Big, fat, fucking lie is another. The problem, as they explain better than I can, is that people made bets with no money in their pocket and now those losing bets are being called but we’re the ones getting kneecapped.

What became clear is that this is far bigger than bad mortgages. Those were just the pawns in a much more dangerous game. If economics correspondent Davidson is scared, so should we be. It’s worse than we thought, bigger than we thought. And it looks as if everyone on Wall Street listened to the show this morning.

On Friday, like clockwork, I got calls from three reporters asking me to defend citizen journalism (again) after its latest mortal sin against the gods of journalism: the report/rumor/lie on CNN’s iReport that Apple’s Steve Jobs had been rushed to the hospital with a heart attack, which spread and sent the company’s share’s diving.

Every time so-called citizen journalism muffs one, I get such calls, as if to say, look what your bratty kid is up to now. Funny, I don’t get them - as a journalist - every time a reporter messes up.

I told these reporters that they were on the tail of the wrong story. This may not be about citizen journalism at all. It may be about someone trying to game Apple stock and using, nefariously, whatever tools were available. I also told them that anyone who sold their stock on the basis of a pseudonymous post on the web was a fool who deserved what they got (are these the same people who invested in subprime mortgages?).

The proper response to this is to ask what our response should be, not to decry all “citizen journalism” because of this.

First, we need to recognize that life is messy. The idea that we could package the world neatly in a box with a bow on top is a vestige of the old means of production and distribution of news: tightly controlled with the limitation-turned-luxury of time.

Ever since the creation of 24-hour cable news, we have lost that luxury of time. Mistakes - let alone rumors and lies - go out live and the public has to learn to judge the news more skeptically. The truth is, they always have. But now rather than ignoring their skepticism, we need to encourage it and educate people to think this way. Call it media literacy. That is one proper response.

Another response from media is that we have to get better at giving caveats. As news rushes by, it is important that we make it clear what is and isn’t confirmed. We thought we were in the business of saying what we know in the news. But we’re more in the business of saying what we don’t know. I’ve often quoted Nick Denton’s definition of what we bloggers call “half-baked posts.” They say to our readers: “Here’s what we know. Here’s what we don’t know. What do you know?”

Note well that CNN iReport issues a blanket caveat on everything it “reports” — hell, this is its tagline and slogan: “Unfiltered. Unedited. News.” Maybe that last word is a problem, but then iReport has had lots of news, including video from the scene of the Virginia Tech massacre. CNN president Jonathan Klein said at a McGraw-Hill conference some months ago that the point of iReport was to have a place to accept stuff from citizens and witnesses that wasn’t CNN. Only that which is vetted, he said, goes up under the CNN brand. But, of course, iReport is near the CNN brand.

It may be a mistake for news organizations to keep begging people to send them stuff. That’s the way they think — centralized, controlling, exclusive. But the better structure may be for journalists to curate the best of what is out on the web. Rather than playing wack-a-mole on the occasional mistake/rumor/lie sent it, editors would better serve if they found the best content anywhere, not just among that which was sent to them.

When the web, like TV, goes live (I can broadcast live today from my Nokia phone over Qik.com), news organizations will have no choice but to find and point to others’ content elsewhere because there won’t be time to send it in.

But the sanest response to reading a report from an unidentifiable source on Steve Jobs’ health is to get on the phone to Apple and find the truth. Note well that that happened quickly online. When I first heard this “news,” it was not that Jobs was sick but that Apple said he wasn’t sick. The reporters I talked to said that was what they first heard as well. Hmm, the system seems to have worked pretty well — except for fools who sell stock based on baseless rumors. But then, that has happened on Wall Street long before there was an internet.

The web, as it turns out, is almost as fast at spreading truth as it as at spreading rumors.

Is this a story of citizen journalism and its failings or of professional journalism and its jealousies?

(Crossposted at Comment is Free)

Matt Thompson creates one part of what I suggested the other day should be the new fundamental unit of news coverage, replacing the article.

MoneyMeltDown is a well-curated aggregation of links to the best coverage.

To recap, I think the new unit of coverage needs to include:

1. Curated aggreagtion. Do what you do best, link to the rest. Here’s the best of the rest. See: MoneyMeltDown.

2. A blog that treats the story as a process, not a product, with continuing coverage and conversation, asking and answering questions, giving updates, filling in gaps: a reporter showing her work. Have you seen a good example? CalculatedRisk is more of an annotated aggregation and that’s valuable but I think it fits better in No. 1 above. The Christian Science Monitor credit crisis blog looks more like a collection of articles. From an industry perspective, the Inman blog is another annotated aggregation. Can anyone point me to a reporter or expert who is using a blog to both report and discover?

3. A wiki that give us a snapshot of current knowledge. Where else would we find that but Wikipedia?

4. Discussion. Where do you think the best - most intelligent and illuminating - discussion is going on?