Matthew Winkler Should Resign

Bloomberg reporters were allowed to look at some of the subscriber data of Bloomberg terminal users. The disclosure, brought to light by Goldman Sachs Group Inc. (NYSE: GS), is staggering in its ethical implications. Reuters, another firm that sells terminals, said it would never do the same. Almost certainly, another Bloomberg News competitor, Dow Jones, which has a terminal delivered news service, has forbidden the practice, if it was ever contemplated as a way to handle reporting at all.

The incident should result in the dismissal of long-time Bloomberg editor-in-chief Matthew Winkler. In response to the scandal, he wrote, “Our reporters should not have access to any data considered proprietary. I am sorry they did. The error is inexcusable.” That set of errors happened on his watch. The Federal Reserve and Treasury Department are investigating the practice. It is entirely possible that Bloomberg reporters collected sensitive data illegally, which would undermine the reputation of Bloomberg reporters among its terminal customers and financial media consumers in general.

More Signs China’s Economy Is Slowing

The Chinese economy showed more signs of slowing, caused either by a recession in most of the rest of the world or perhaps a drop in spending by its own middle class. That middle class could be reacting to the recession news and fear that the slowdown could spread to the People’s Republic. At that point, as far as the Chinese are concerned, injury to gross domestic product could become a self-fulfilling policy. According to a Wall Street Journal article on the Chinese economy:

Industrial output, China’s main monthly growth measure, increased 9.3% year-on-year in April. That’s slower than the pace of growth for much of last year. But it’s an improvement on March’s data and allays fears that the world’s second-largest economy is heading into a tail spin.

There was no shortage of holes in the ground being dug. New residential property construction accelerated. Investment in railways gathered steam and spending on other public works remained strong. Cement production increased 8.7% year-on-year in April up from 6.9% in March.

But the days of investment leading super-charged growth look numbered. Productive investment should generate output in the year it is made and the years that follow. A recent study by the International Monetary Fund suggests that China’s massive infrastructure investment has only a short-lived impact — suggesting wasteful allocation of capital.

Detroit Finances in Ruins — Emergency Manager Kevyn Orr

Any hope that Detroit can recover from decades of decay and poor management evaporated as its new emergency manager, Kevyn Orr, issued a report on his first 45 days on the job. The report was so bad that it means Detroit will almost have to go bankrupt and sharply cut the amount of money owed to retirees and bond holders. It would be the largest default of an American city by far. The Detroit Free Press said of Orr’s 45-day report:

Detroit will finish its current budget year with a $162-million cash-flow shortfall and doubts about the financial health of its pension funds, according to a new report by the city’s emergency manager that lays out the financial free fall in stark detail.

The report, mandated by the state after an emergency manager’s first 45 days in office, confirms a city in desperate shape, with costs for retiree benefits eating up a third of its budget and public services suffering as Detroit’s revenues and population shrink each year. That has led to deferment of payments and an accumulated deficit that would exceed $600 million were it not for borrowing practices the city has used to cover shortfalls.

A city that has taken out loans and moved money between funding sources “has effectively exhausted its ability to borrow,” said Kevyn Orr’s report to the state Department of Treasury.

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