Very interesting article. Thank you for posting it. What he didn't mention(or was possibly omitted in this abridged version) would have been the fear that financial editors might bring on the crash by reporting on it's possibility. The old 'self-fulfilling prophesy' angle. In my memory, what really woke me up to how much trouble we were all in was the failure of Lehman Bros. and the Fed's response. Huge, huge sums to prop up AIG, Bear Sterns and others. This was supposed to calm the markets and reduce fear and prevent a run on selling but seemed almost to have the opposite effect because the general public learned just how bad things were. "The party is over" is the phrase burned into my mind. The guy that said that was right.
Of course, it was hard for journalists to attack the ideal of broader home ownership in America, but that is no excuse. Indeed, it is not. I see this as the biggest problem of the MSM. A huge soft heart for liberal causes. "Keeping people in their homes" should have nothing to do with banking. Banking should be a private enterprise without implied government support. In my mind the biggest failure is with the Fed. Reserve and the SEC. There were plenty of letters to the SEC warning of problems and they choose to do little. Perhaps for fear of bringing on the crash. The acting CFO for Freddie Mac was found dead this morning in his home from apparent suicide. It makes me sad to hear of it. Guilt, if that is what made him do it, is a terrible burden he should have realized he shared with many-not just his company or the media but this country which has borrowed and spent far too much in recent history. My heart goes out to his family. From what I've read about him, he seemed like a really good man. On Wed, Apr 22, 2009 at 11:31 AM, gruff <[email protected]> wrote: > > A great but brief narrative and blame naming of the financial > crisis ... keep the faith ... > > A FLAWED FIRST DRAFT OF HISTORY (OF THE FINANCIAL CRISIS) > By Lionel Barber > Published: April 21 2009 20:17 > Financial Times > > These are the best of times and the worst of times to be a financial > journalist. The best, because we have a once-in-a-lifetime opportunity > to report and analyse the most serious financial crisis since the > Great Crash of 1929. The worst, because the newspaper and television > industries are suffering, not only from the shock of a recession but > also from the structural shock of the internet revolution. > > Now comes a third shock. The financial media are accused of missing > the global financial crisis. Asleep at the wheel. Head in the clouds. > No cliché has been left unturned as reporters, commentators -- yes, > even editors -- have been castigated for failing to warn an > unsuspecting public of impending disaster. Do these charges add up? To > paraphrase the killer question from the Watergate hearings: what did > the press know and when did it know it? > > First, by way of mitigation, journalists were not the only ones to > fall down on the job. Political leaders were happy to break open the > champagne at the credit party; many lingered long after the fizz had > gone. Regulators in the US, UK and continental Europe all failed to > identify and contain the risks building within the system. Many > economists, too, fell short. Only a few -- such as Nouriel Roubini, > now celebrated as the thinking man’s prophet of doom -- identified > pieces of the puzzle, even if they failed to piece them together. > > Why did financial journalists not pay more attention to these > warnings? First, the financial crisis started as a highly technical > story that took months to go mainstream. Its origins lie in the credit > markets, coverage of which in most news organisations counted as a > backwater. Most reporters working in this so-called 'shadow banking > system' found it hard to interest their superiors who controlled space > and who were more interested in broadcasting the 'good news' story of > rising property prices and economic growth. > > A second related problem with the credit derivatives story was that it > took place in an over-the-counter market with little disclosure and > very little day-to-day news. Inevitably, the temptation was -- and > still is -- to run with the stories that are much less opaque such as > public company earnings. Yet the big innovations and the big money > came in the credit markets. > > The second criticism is that the media were too interested in building > up a good news story. The comedian Jon Stewart’s on-air demolition of > the booster-turned-doomster Jim Cramer shows there is a case to > answer. Mr Stewart went so far as to suggest that CNBC, which hosts Mr > Cramer’s Mad Money show, overlooked market shenanigans as it was too > close to its core community: Wall Street traders and investment > bankers. Danny Schechter, writing in the British Journalism Review, is > equally critical alleging that newspapers had no interest in pursuing > scandals in mortgage lending for fear of alienating property > advertisers. > > Journalists routinely face tensions between relying on their sources > and burning them with critical coverage. Think of the White House > press corps, the British 'lobby' press that covers parliament or > sports journalists assigned to a team. The incentive to 'go along' to > 'get along' is always present, in competition with a journalist’s > instinct to speak truth to power. > > In the final resort, there can be little debate that the financial > media could have done a better job. In this spirit of self-criticism, > I identify four weaknesses in the coverage. > > First, financial journalists failed to grasp the significance of the > failure to regulate over-the-counter derivatives that formed the bulk > of counterparty risk in the explosion of credit following the dotcom > bubble. Alan Greenspan was opposed to such regulation, but how many > commentators took the former Fed chairman to task and warned of the > risks? For the most part, journalists were too enamoured with the > prevailing tide of deregulation. > > Second, journalists, with a few notable exceptions, failed to > understand the risks posed by the implicit state guarantees enjoyed by > Fannie Mae and Freddie Mac, the mortgage finance giants. Here, we > should tip our hats to the now much-maligned Mr Greenspan. He raised > alarms early about the risks. Of course, it was hard for journalists > to attack the ideal of broader home ownership in America, but that is > no excuse. > > Third, journalists failed to grasp the significance of the growth in > off-balance sheet financing by the banks, its relationship with the > pro-cyclical Basle II rules on capital ratios, and the overall concept > of leverage. How many news organisations reported on the crucial > Securities and Exchange Commission decision in 2004 to loosen its > regulations on leverage? The explosive growth of structured investment > vehicles at the height of the credit boom was also woefully under- > reported. > > Fourth, financial journalists were too slow to grasp that a crash in > the banking system would have a profoundly damaging impact on the real > economy. The same applies to regulators and economists. For too long, > too many experts treated the financial sector and the wider economy as > parallel universes. This was fundamentally wrong. > > Many of the most important developments of the past decade -- the rise > of radical Islamic terrorism, the opening of the Chinese economy as > well as two credit bubbles -- have largely been unanticipated or > failed to attract the attention they deserved. Journalists, in this > respect, have a crucial role to play. Flawed they may be, but they > still have the capacity to be the canaries in the mine. Long may it be > so. > > The writer is editor of the Financial Times. This is an abridged > version of a speech he gave at Yale University this week > > Copyright The Financial Times Limited 2009 > > > --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""Minds Eye"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/Minds-Eye?hl=en -~----------~----~----~----~------~----~------~--~---
