Journalism and the financial crisis

I took part in a seminar yesterday at the Reuters Institute for the Study of Journalism at Oxford. The other speakers were Hugh Pym, the BBC's economics editor; Andrew Dilnot, principal of St Hugh's College; Stella Dawson of Thomson Reuters; and Colin Mayer of the Said Business School. We were talking about the way journalists have covered the financial crisis. The seminar will be available as a podcast. This is roughly what I said.

It isn't reasonable to hold journalists culpable for failing to anticipate the extent of the crisis. None of us has seen turmoil like this before. We've seen the collapse of parts of the financial system - the Asian currency crisis of 1998, or the failure of a highly-leveraged hedge fund, say - and the risk that these developments will have systemic effects. But we haven't seen the collapse of a credit bubble. The allocation of credit - matching those who have capital with those who can profitably use it - is the foundation of commercial activity. Hence the gravity of the crisis.

But there are components of this crisis that ought to have been anticipated better by journalists as well as policymakers. The most significant oversight, in my view, was the attribution of special insights and almost mystical powers to Alan Greenspan. In retrospect it is obvious that the Fed engineered the conditions for an asset-price bubble, in order to mitigate the impact of the dot-com collapse after a wasteful boom in investment. Much follows from this: the targeting of the marginal borrower in the US housing market, often by predatory lending practices; weaknesses in the "originate and distribute" model of banking; conflicts of interest among the ratings agencies, which gave triple-A ratings to complex securities that were difficult to understand; and the severe weakness of the system of financial regulation, especially the tripartite system created by our own prime minister.

Newspapers and broadcasters have done their best to explain how the crisis came about and the remedial action that policymakers are taking. It's a shame, however, that much of the newspaper coverage in the UK has taken the form of identifying agents of the crisis who in fact have little to do with it - short-sellers of bank stocks, for example. In my view it would help temper future asset price bubbles to extend the ability to sell short rather than to curtail it.

Comments

[Kardinal Birkutzki]

Managed to read the first paragraph!
Held back from the rest because I prefer to degorge waste paper into the bin rather than..
P-ER-LEASE answer me a question: How, exactly do people like you earn a living? You serve no purpose, say nothing of note and yet,there you remain at the top of the pile on massive wedge. And we are supposed to respect your view, perhaps? Yes, of course, because you once did...er...did...oh I know: you were a journalist, which qualifies you to comment on what?

[JOHN CHUCKMAN, TORONTO]

I guess we might fairly conclude you are a short-seller upset by bad publicity.

[Tony Francis]

In the US, the news is even simpler. CNN and MSNBC have reported that Obama and his team will solve the financial problem. It is a two pronged approach to reporting: Obama is so brilliant he cannot fail. But if he does fail, it is because Bush II fouled things up so much. When Obama announced his financial team last week, the Dow jumped about 1000 points. This was gleefully reported on CNN and MSNBC as proof positive that recovery was on the way, thanks to Obama. One female commentator on MSNBC lamented that the market fell 700 points yesterday. "How can this be, when Obama is going to solve things? It is clear: Bush is still president!" That is the level of reporting in the main stream media. Business channels are more sanguine. To be honest, no one saw this coming except doomsayers who always predict a crash.

Non-business channels have often blamed the current conditions on "conservative economic practices which clearly don't work." Emphasis has been on subjects such as "buy and hold no longer work" and the government needs to provide savings for individuals. This ignores the fact that professionals can't market time and choose good and bad stocks. So how can average individuals? What has largely been ignored by the press is the fact that Bush II has just nationalized large parts of the economy.

[Jack]

"In my view it would help temper future asset price bubbles to extend the ability to sell short rather than to curtail it. "

Do you know of speculators who would have wanted to short-sell the equity market during the dot.com boom? It seems to me that short-selling occurs mainly during a bear market when other investors can be panicked into selling, allowing the short-sellers to cover their positions.

[TDK]

Newspapers and broadcasters have done their best to explain how the crisis came about and the remedial action that policymakers are taking.

I'm stunned that anyone would claim this. Your very next sentence shows how knee jerk the media has been.

To pick one example. Where in the UK media has it discussed the role of "mark to market"? Where on Oliver Kamm to that matter.

I'm only peripherally involved with banking yet I'm reminded of something once said to me: You only ever realise how bad the media is when it talks about something close to home.

[Jeff]

Interesting article.
Thanks for sharing this post.