Lecturer’s View: “This recession was due, in part, to failures in financial journalism”

At the end of a lunch at the Davos economic forum in 2007, an unnamed high-profile business figure tried to embarrass a Financial Times journalist by standing up, waving one of her articles around, accusing her of “unhelpful doom-mongering”.

The reporter, Gillian Tett, had pointed to the worrying problems within Northern Rock, the bank that, less than a month later, was nationalised, owing £26.9 billion sterling through Bank of England loans.

She was among the few financial reporters who was not caught unaware as the world accelerated towards financial meltdown, a crisis that was contributed to by large-scale failures in responsible lending, stringent regulation and political planning.

But the recession was also due, in part, to failures in financial journalism. With some exceptions, financial reporting had collectively failed one of the fundamental functions of journalism: keeping a critical watch over society’s elites.

Critical perspectives on core issues, such as easy credit and the flow of money around the world, had been largely missing from most financial journalism, which has long been analysed as a genre written almost exclusively for the financial elites: bankers, traders, fund managers, shareholders.

Financial coverage, in its traditional position towards the back of the paper or the end of the nightly news, focused on companies and business results, annual statements, annual meetings, and its explanations of the economy used a blizzard of jargon that would be unacceptable in other reporting genres.

How many non-specialists understand the following: the money velocity, derivatives, short selling, a hedge fund, the bond market, quantitative easing, toxic loans, the Libor and (my favourite) ninja loans?

The term ‘media hype’ has usually been used in an analytically unsophisticated way, reserved frequently for coverage of sport or show business, but the concept, defined loosely as exaggeration, has applied equally to financial reporting.

It has explained the pattern of coverage over years in Ireland where there has been largely uncritical coverage of (always rising) house prices and the country’s supposedly never-ending weath generation. Financial coverage could be explained by the hype velocity and the jargon velocity.

Incidentally, the anti-clarity jargon has also appeared within the financial world. Bernard Madoff, the Wall Street fund manager who scammed the world’s supposedly smartest investors out of $50bn, attributed his success to his “split-conversion strategy”.

No-one really knew what he meant, but once they could see the returns on paper, all was fine until, well, er…

Into the space vacated by financial journalists stepped a coterie of commentators to explain to a wider public the meaning of these terms which – as we are now finding – are central to our lives, even though many of us lack the basic financial literacy to interpret them adequately.

David McWilliams (who, in fairness, had warned consistently about the impending burst of the property bubble), Marc Coleman, Eddie Hobbs and George Lee have become Ireland’s home-grown economic gurus.

Internationally, many commentators have been economic historians, to whom publishers have turned to get some perspective on the recession. Harvard historian Niall Ferguson wrote about the crisis in Vanity Fair and took a longer historical view in the television series and book, The Ascent of Money. MIT economist Paul Krugman’s The Return of Depression Economics has become a bestseller.

A recently-mooted solution to the financial crisis was the euphemistically named ‘quantitative easing’: essentially turning on the printing press to flood the financial system with money, easing pressure on the banks.

Similarily, the crisis might have the benefit of causing some quantative easing of future pieces of uncritical and embarrassingly laudatory financial journalism. It is only in times of financial crisis that business news moves to the front of the paper: Enron, Ansbacher, the current tumult in global banking.

So, while these types of stories stay on page one, it might be a good time to improve individual financial literacy, to reduce the dependence on a selected few commentators for information of central importance to all citizens’ lives.