Former BBC economics correspondent Steve Schifferes used his inaugural lecture as Professor of Financial Journalism at City University in London to have a stab at answering why journalists did such a poor job at predicting the global financial crisis.
By his reckoning the crisis – which began in August 2007 – led to a $50 trillion reduction in global wealth and government bail-out costs for financial insitutions of $10 trillion.
Yet with more financial journalists employed in the UK and US than ever before – on the whole they did a pretty poor job in providing any warning of the gathering the storm, the causes of which have become clear to see with benefit of hindsight.
You can read the full lecture here, but here are a few snippets:
“…financial journalists could have done better in both examining the roots and spotting the serious consequences of the crisis sooner – and why they didn’t reveals much about the nature of the trade.
“…there was a kind of group-think, a ‘cognitive bias’ to use the fashionable words of behavioural economics – in favour of the efficiency of free markets, and in particular their ability to price risk, which was shared by policy-makers, economists and financial journalists alike…
“…this failure was compounded by the difficulties of understanding what was happening in the big picture because of the growing specialisation of function and beat.
“One of the journalists who did understand the growing risks that bankswere taking on was Gillian Tett, the capital markets reporter for the Financial Times. But her difficulty was in getting her views accepted more widely across the newspaper.
“It is telling that Martin Wolf, the FT’s leading economic commentator has recently admitted that hedid not really see the broader consequences of her concerns untilthe crisis broke….
“…the lack of business or financial expertise among the top rank of editors and front page subs who choose the top stories of the day. Once the crisis broke in October 2008, there were willing to be guided by their financial journalists. But before then, it was a brave front page editor who put a story about the collapse of bond markets for certain derivatives on his front page.
“This was another kind of failure of imagination, and one that emphasised the growing split between the specialist and generalist functions of the financial press…”