< Bloomberg Terminals, Spying, and Business Models

Transcript

Friday, May 17, 2013

BROOKE GLADSTONE:  The government wasn't the only powerful body caught snooping in recent weeks. On May 10th we learned that Bloomberg News reporters were using Bloomberg terminals, those omnipresent, seemingly omniscient financial data computers, to follow the comings and goings of users. Bloomberg LP, which owns Bloomberg News, currently sells access to those terminals to about 315,000 subscribers, each for about $20,000, which largely accounts for the phenomenal success of the company. Bloomberg has since apologized but financial institutions are still nervous. For instance, JPMorgan is pushing to know just how much information reporters had access to.

Neil Irwin at the Washington Post, says that this scandal reveals much about Bloomberg's “secret sauce” for making money from professional money makers, by which I mean the people on those terminals.

NEIL IRWIN:  It’s basically anybody in the world of finance who needs to have instant access to information about what's happening in every corner of the financial universe who’s trying to trade on that information and make money off of it. It's only people who have a lot at stake. If you really want this entire network of information, that's what they offer. That's why they’re able to charge $20,000 and why competitors have not been able to pick off that business.

BROOKE GLADSTONE:  And it isn’t just stuff that's available elsewhere, right? They have a lot of original reporting.

NEIL IRWIN:  We think about Bloomberg as a media company because if you’re a journalist, it's kind of the narcissism of journalists.

  [BROOKE LAUGHS]

We read their stories, we know what they’re writing. That's actually a small part of what they do and a small part of the reason they’re able to charge $20,000 dollars for a terminal. They do things that are very hard to do. They, they take all kinds of bond market data concurrency data and give you tools to analyze it in new and novel ways. They also do things that others wouldn’t even think to do.

 

In Cushing, Oklahoma there are these oil terminals. It’s the  largest crude oil storage in the western world. The way the source facilities work the roofs rise or fall depending on the level of oil, ‘cause otherwise there would be too much fumes and it could catch on fire.

BROOKE GLADSTONE:  Mm-hmm!

NEIL IRWIN:  They actually send a satellite by these terminals twice a week to take photographs, and from the shadows cast by the roofs of these storage facilities, you can actually estimate the current inventories of crude oil in Cushing, Oklahoma.

BROOKE GLADSTONE:  That's just stunning. And it was the company's mission to be the first with this kind of granular information that ultimately led to Bloomberg News employees spying on users?

NEIL IRWIN:  So part of what the news operation does is they are  very fast on stories like who's gonna be the new central banker in Hungary or, you know, what's happening in the market for Botswana's currency. What they've also been doing is focusing on what's happening with executive changes at big banks, who’s being fired, who’s being hired. They had a little help in doing that because the journalists could access information on what terminal subscribers were logging in or not. So if a trader was fired, Bloomberg reporters were able to access that information that he had logged in for a couple weeks and asked what the heck is going on.

BROOKE GLADSTONE:  Do we know about any particular story that was the fruit of this kind of snooping?

NEIL IRWIN:  There's a Bloomberg reporter in Hong Kong who noticed a Goldman Sachs executive had not logged in, in a couple weeks, went to Goldman and said, hey, this person hasn’t logged in, is there a story here? Is he no longer with the company? Goldman was furious about this. They couldn't believe that this information was available. It ended up in the New York Post and, before you know it, Bloomberg’s getting yelled at from all directions. And apparently, the same thing happened with JPMorgan last year, with the London Whale, the trader who caused billions in dollars in losses for the bank.

BROOKE GLADSTONE:  So, as you note, the reaction by the banks has been swift and very [LAUGHS] loud. Do you think it’ll have an effect on the company's bottom line?

NEIL IRWIN:  You know, if you're a hedge fund, if you're a big bank, you want to maintain absolute confidentiality of everything you're doing, and any sense that that has been breached is gonna cause lasting damage to the company. That said, in terms of actual cancellations or, or losing subscribers, there's no evidence that’s happening, so far. It certainly is something that their major clients are nervous about.

 

You know, the Federal Reserve, the US Treasury, the foreign central banks, they all have Bloomberg subscriptions, as well. It's how they get the data they use to analyze what's going on in the markets. And they’re not happy. You know, they're looking into did Bloomberg journalists have access to this information on what these high government officials were doing, when they were logging in, what types of data they were accessing. The Bank of England is particularly angry.

MALE CORRESPONDENT:  The Bank of England saying, quote, “The protection of confidential information is vital here at the Bank. What seems to happen at Bloomberg is reprehensible.”

BROOKE GLADSTONE:  You’ve observed that this incident pits the two imperatives of Bloomberg's strategy against each other.

NEIL IRWIN:  Right. So Bloomberg has built a very profitable company, a very large company, based on this interlocking information ecosystem. On the one hand, they want to be the first with the news that people in the financial world care about, and the key part of the news is, is the guy in the corner office gonna get fired.

  [BROOKE LAUGHS]

And that’s something that everybody in the financial world wants to know, and they wanted to know it yesterday. On the other hand, they can’t endanger that client trust ‘cause if they do the entire house could fall apart and then they’re in real trouble.

BROOKE GLADSTONE:  This is a sticky wicket for Bloomberg.

NEIL IRWIN:  It is. They have changed the policy, so it is the case that journalists don't have access to this information anymore. But it’s a sign of this strange world we’re in. You know, if there’s one thing we’ve learned this week from all of these different stories whether it’s the government or your data provider, the amount of data people can access about each of us is something that I think is a little scary. And the Bloomberg story fits into that, that thing that makes us all a little nervous.

BROOKE GLADSTONE:  Neil, thank you very much.

NEIL IRWIN:  Thank you.

BROOKE GLADSTONE:  Neil Irwin is a Washington Post columnist and author of, The Alchemist:  Three Central Bankers and a World on Fire.

 [MUSIC UP AND UNDER]

Guests:

Neil Irwin

Hosted by:

Brooke Gladstone