The Queen and the economic crisis
Posted 10 months, 2 weeks ago at 4:39 pm. Add a comment
“That’s awful. Why did nobody see it coming?”
Her Majesty The Queen at the opening of a new building at the the London School of Economics in November 2008.
Reportedly, this is how Her Majesty reacted to being told about the role of toxic debt and complex financial products in the unfolding economic crisis by a group of LSE professors.
How could it be that nobody realised that a system by which traders can engage in elaborate, highly lucrative gambling could spell global economic meltdown? “Scientists, economists and other observers are lousy at forecasting - especially when it involves the future,” says Professor Willem Buiter, former chief economist at the European Bank of Reconstruction and Development.
Only a handful of experts foresaw anything like this global recession
Few financial journalists can claim to have even had an inkling of the imminent near-collapse of the system, let alone the guts to ring alarm bells with the needed authority and fury to prevent it from happening. People like Jeff Randall, editor-at-large for the Daily Telegraph, and Vince Cable, MP for the Liberal Democrats, were part of a handful of experts who have been concerned about complicated financial instruments and deregulation for almost a decade. But there was little interest in their views; they were spoiling the fun of cheap money and a housing boom.
In recent months, many have tried to claim that they belonged to this previously ostracised group. Many of those now exclaiming “told you so!” are journalists. At a recent Media Society conference about the media’s role in the financial crisis, several attendees were adamant that they had been trying to get the word out to the public, but were prevented from doing so by dogmatic editors, powerful public relations figures and a disinterested public.
While this version of events is often not more than a highly expedient gateway to the moral high ground, there is some truth in these allegations. Of course the public could be more engaged and PR people more principled. Editors could certainly have done much more to present a wider range of alternative angles.
The media’s failure to spot a crisis in the making
“The media operates in a singular dimension,” says Evan Davis, presenter of the BBC’s Today programme. “It tends to be good news or bad news. It’s sunny or it’s rainy and there doesn’t tend to be anything in between.”
Another factor that played a part in the media’s failure to spot the crisis sooner was the simple fact that not even the experts were aware of much that was going on. “When we tried to draw a map of the financial system a couple of years ago, we realised we were only covering a small part of it,” says Gillian Tett, assistant editor of the Financial Times. “The vast shadowy debt and derivatives market that was quietly expanding and driving a lot of the city’s revenues was almost entirely ignored and hidden.”
The intricacies of capital market trading were never perceived as an area worth investigation. This part of the financial sector had a geeky and technical image, while other areas held the promise of considerable kudos. “Most of the glory and money was tied to jolly good titles like ‘economics editor’ and ‘banking editor’,” explains Tett. “The capital markets team, in contrast, sat in what was a bit of a cupboard round the back of the building.”
Not only was it an unsexy area to get into as a journalist, it was also almost impossible to report your findings without inducing a mixture of yawns and frowns. Especially the tabloid press steered well clear of the complexities of the financial markets. “It is almost impossible to explain certain issues in a popular paper,” says Alex Brummer, city editor at the Daily Mail. “We use shorthand like ‘printing money’, which causes all sorts of offense around the place.”
The role of financial PR
But the complicated nature of capital markets was not the only reason it took journalists so long to smell the rat. Much has been made of the tactics of the city’s public relations agencies and their role in clouding the vision of those who might otherwise have spotted impending doom before it was too late.
Brummer describes financial PR executives as “extraordinarily wealthy professionals whose job it is to dissemble lies to the press.”
He adds: “They also have a legal system they can use: letters of complaints, PCC (Press Complaints Commission) complaints and a whole array of other weapons they can use to put you off the track.”
Financial PR is a thriving, influential business that has carved out a central role for itself in the financial world. In 1986 the UK financial PR business was worth £37 million, a decade later this figure had risen to £250 million. Brunswick, the UK’s largest financial PR agency, lists a third of the FTSE 100 companies as its clients.
Among journalists there is an ingrained ‘us versus them’ ethos when it comes to dealing with PR people. But while most financial journalists agree that ‘their’ PR pack profited from the fiendishly complicated nature of the debt capital market, not all share Brummer’s view of public relations professionals.
“Certainly there was a PR machine that tried to keep a lot of this activity in the shadows,” explains Tett. “But it’s not a case of them being evil. They are just doing their job. They have a lot more resources than us and they have the entire might of the bank behind them.”
Who wants to read (or write) boring, depressing and complicated news stories?
Arguably, the biggest mistake of the media in reporting the financial crisis was not the failure to produce accurate forecasts, understand the intricacies of the financial system or keep its somewhat cosy relationships with PR agencies in check. The media’s greatest mistake was to withhold important information from the public out of fear it would bore or overtax them. The editorial habit of boiling stories down to a single nugget of meaning in order not to obfuscate the crisp, authoritative voice that most publications crave, should be reconsidered.
“I as a listener or viewer would feel much better if I had just been told – not that there is going to be an earthquake, but that there might be one,” says Davis. This is not to say that the crisis could have been averted if only editors had had more appetite for unusual angles and higher opinions of the public’s ability to ‘get it’. But at least the public would feel less like victim of an elaborate, global scam.
