This chapter is part of a new book, 'Playing Footsie with the FTSE?' 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.
What has been the role of the press in the current economic crisis?
The press has been a critical source of information to all stakeholders throughout the current financial crisis. It has been able to:
- Alert the public to potential problems in the banking system;
- Keep them well informed about developments;
- Explain the rights of the public to deposit insurance and the impact on their mortgages and other loans;
- Explain the sources of the problems and analyse their impact on the economy, the world of finance, politics and the future direction of regulation.
As Bank of England governor Mervyn King has said, depositors, especially those with more than £35,000 (then the limit), were acting in 'a rational way'. Far more important it would turn out was not the retail run, which we could see, but the wholesale run in which banks in the money markets declined to roll over billions of pounds of loans. They knew what the retail depositors didn't which was that half Northern Rock's mortgage book would roll over in 2008-2009. The press, in reporting the retail run, was only giving retail depositors the same information.
Far from scaring people, the press was providing people with reliable information. We had to employ a temporary person to assist with the volume of phone calls. The number of letters and emails rose exponentially. Readers were looking for independent advice and the Daily Mail certainly was one of the first places to call. After the dramatic events of the autumn of 2008 and the collapse of Lehman's [Lehman Brothers] few people including the government seemed to recognise the correlation between cutting off the supply of money to the economy and the recession which came very quickly in the final quarter of 2008 and the first quarter of 2009.
The press was widely accused of talking the country into cautious behaviour and recession. No doubt there was something of what economists call a 'negative feedback loop'. Should reporters have desisted from reporting the endless bad economic data produced by the Office of National Statistics, the Organisation for Economic Coordination and Development, International Monetary Fund and so on? I somehow think not. It may have been that the BBC's relentless charts pointing downwards did make an impact. But they were reporting the facts - a catastrophic decline in production.
Should financial journalists operate under any form of reporting restrictions during market turbulence?
Placing restrictions on the freedom of the press during market turmoil would be counter-productive. It is the moment when readers are looking for information on what has happened and analysis of why it happened and explanations about what they should do. Newspapers are also part of the price formation process. They are a vital ingredient in the complex decision process which decides whether shares should be bought or sold. Why would you have an RNS system - regulatory announcements structure - required by the Financial Services Authority (FSA) and others for transparency purposes and only let the professionals have access. That would put other stakeholders from trades unions to consumers and private shareholders at a big disadvantage. There would also be technical difficulties in an age of electronic media.
If respectable newspapers were barred from reporting on events, the information from less well informed sources, without access to senior officials, documents and so, would almost certainly leak out onto websites and blogs. We see this with all manner of stories. On newspaper finance pages there is at least a formal editing process, whereby the copy goes through several hands, before publication. It would be irresponsible to block reporting during a crisis. Certainly stories could be better sourced, but the rule at the Daily Mail is that we need at least two reliable sources and a response from the institution concerned before going into print. We also exercise self-restraint. We had a potentially damaging story on Northern Rock in the early part of 2008 when the government was trying to sell the bank. But in response to appeals from the company and an explanation at the highest level from the Treasury we desisted.
Do financial journalists have sufficient expertise in financial issues?
Most journalists would struggle with synthetic CDs and other ridiculous toxic bank concoctions. Nor surprising as this committee found that Credit Suisse among others didn't understand them. But the journalist's job is to report what happens. many of the stories of the last year have been driven by share price falls. Stocks don't just fall, there is always good reason and we have done our best to establish why that has happened. Sometimes there is an effort to blind us with science.
If there is a problem it could be the mismatch of the bullying financial public relations industry - with its various tools and the support of a legal system behind it - against a single journalist pursuing a legitimate inquiry. The amount of dissembling which has gone on through the crisis would have to be seen to be believed. But in almost every case the press has been right to be highly sceptical.
There is room for improvement. I am fortunate: I have a solid economic and financial background, but more importantly more than 30 years of financial journalism behind me. I reported on the secondary banking crisis of 1974-1975 and played a part in investigating London and County Securities. So I have seen it before and have the judgement. But it might help if there were better refresher training for journalists. My preference would be that this was done through City University but there may also be a case for short secondments to the Bank of England (BoE), the FSA and bank dealing rooms. At present only the BoE offers this opportunity which my colleagues have found most valuable.
One weakness in financial reporting of the crisis is that there is a tendency in the national media to focus on cash markets because derivatives and other markets are so impenetrable. It is a credit to the Financial Times that it did report on these more recherché areas. But it is also interesting to note that even the City's 'house paper' - as it is known elsewhere on Fleet Street - buried much of this material way back among the share prices at the back of the book. Much of the reporting was in technical language which ordinary members of the public would have found as accessible as nuclear physics.
Did the financial media in print alert the authorities to issues of public concern?
The financial media has always been at the forefront of exposing wrongdoing of companies. Some of the greatest financial scandals of our time from London and County Securities in 1973-74 through the Maxwell scandals between 1992-1996 have been uncovered as a result of journalistic inquiry. I first wrote about Northern Rock's securitisation model and my doubts about it in 2002-2003. If only the FSA had paid more attention. I have little doubt that the old Bank of England, with its extensive market intelligence network, would have done. Such tip offs are invaluable. Resources of newspapers have become more stretched, so those investigatory opportunities are less.
Earlier this year the Serious Fraud Office made arrests in Spain over an AIM company, on London's junior market, which had gone wrong - Langbar. Much of the preliminary investigation of this was done by a colleague of mine Brian O'Connor since retired from journalism and now a fund manager. Similarly, we did valuable work on Independent Insurance which caught the eyes of the authorities. The whole issue of directors pay and remuneration has been the result of journalists hammering away at fat cat awards and payments which are unacceptable. The code of corporate governance grew out of criticism of such practices. The Guardian's work on tax avoidance in 2009 exposed the shortcoming of Her Majesty's Revenue and Customs - an issue which I am sure will be pursued by government and regulators. In July, this was party responsible for triggering a new tax amnesty programme.
Conclusion
Financial journalism has its faults like all kinds of press. But as a whole it does a good job in checking the wrong doing of the City. During the peak of the economic boom there was a tendency towards believing that the top financiers, such as disgraced Royal Bank of Scotland chief executive Sir Fred Goodwin, walked on water. I may have been part of that cult too at times. But generally speaking, like theatre critics looking a new production, we attempt to find the weak spots in company and government announcements. It can be an unfair contest: tough, well-paid PRs against young financial writers. But generally speaking financial journalists are sceptics and this has been a great protection for the public.
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