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Most journalists failed to predict the great crash of 2008 because they focused on news events and individual banks rather than macroeconomics, Brian Caplen, editor-in-chief of the Banker has argued in a new book.

In his chapter in 'Playing Footsie with the FTSE?' the system of 'securitisation' is cited as a prime example. Though controversial when first introduced in the 1990s, the procedure of involving mortgage payments and 'made-up companies' was soon accepted among financial journalists and the industry.

Such complacency resulted in leading journalists failing to predict the financial crisis at the end of 2008, Caplen has argued.

According to Caplen, securitisation 'grew into this massive and unchecked industry': mortgages, credit cards, car loans and a 'whole mixture of loans jumbled up together'.

"I think what fooled journalists, regulators, politicians, risk managers more than anything about the crisis, however, was the impact these new instruments and structures could have when they were built up and leveraged on a mass scale," he wrote.

"Some of us did write articles about the build-up of leverage but mostly it was considered a matter for individual banks. Few of us spotted how markets were mushrooming and the financial sector as a whole was becoming wildly out of proportion to the real economy it was supposed to be serving."

[Read Caplen's article in full at this link ]

Defending the financial press

While most of the financial press missed these signs, 'a financial crisis on this scale is a once in a century event'. A journalist could live 'a whole predicting it' and never see it, he added, in defence of his fellow business and economic reporters.

"[E]xpecting humble scribes to put all these complex concepts together, as well as name the day and form in which the whole thing will all come tumbling down - and run a decade-long campaign for regulatory change and oversight - is probably asking a bit too much," he said.

Caplen's view has been echoed by the new Marjorie Deane professor of financial journalism at City University. Steve Schifferes, whose appointment was officially announced today.

"I think what everyone missed was what is now called the 'macro-credential risk': people were focusing on 'is this risky for a particular firm to do this'; but what they should have been asking was if it was creating risk for the system as a whole," Schifferes told Journalism.co.uk.

"I think the journalism profession as a whole, like the banking sector, and indeed policy makers - central bankers and regulators - all were rather bamboozled or seduced by the notion that markets always work perfectly and the new system of securitisation was spreading risk rather than concentrating it.

"As a whole, we [journalists] followed trends - but there were a number of honourable exceptions," Schifferes said, citing the Financial Times' Gillian Tett and the BBC's Robert Peston.

Other commentators such as Nouriel Roubini and Paul Krugman warned of these dangers too, he added.

"There were a number of warnings but I think it's probably fair to say that we could have warned more strongly, or raised questions earlier," he said.

Brian Caplen's chapter - in full at this link - is part of a new book, 'Playing Footsie with the FTSE?' edited by John Mair and Richard Lance Keeble

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a collection of 20 articles by leading journalists and academics that asks why leading financial journalists and commentators failed to predict the biggest economic crisis in 70 years. It will be published by Abramis on September 28 .

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Written by
Judith Townend

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