A failure of journalism as well as of banking?

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Thoughtful piece by James Robinson about why even the specialist media were taken aback by the banking crisis.

Should City editors and economics correspondents have predicted it?

Alex Brummer, the Daily Mail’s experienced City editor, believes they should have done. He argues that, although City journalists covered the problems of some individual companies creditably, few grasped the enormity, or scale, of the situation.

‘They were slow off the mark originally,’ he says, pointing out that young journalists who weren’t working during the last financial crisis in the 1970s did not have the foresight to realise that a problem at one institution can quickly become a problem for all. ‘That has something to do with the age profile. They’ve been brought up in a period of non-stop output and growth. I cut my teeth as a financial journalist in the white heat of the 1976 financial crisis, when 25 banks went under. Having lived through all of that you learned a [crisis] spreads from one institution to another and [governments] need to do something very quickly to stabilise the system.’

Brummer’s historical perspective is something only a few share. Jeff Randall, a business journalist and the Daily Telegraph’s editor-at-large, has been warning about personal debt and an unsustainable housing boom for years, and others have voiced similar concerns. Yet few identified the sub-prime market, or the credit crunch, as triggers that would push the world to the brink of recession, and senior figures at the FT admit they should probably have done better in that regard. Dan Bögler, the paper’s managing editor, says: ‘We believed the bankers when they said derivatives were making the world safer by spreading risk. But in reality it became a game of pass the parcel and the parcel ended up in the hands of those who least understood it. We take our share of the blame for that.

‘Why didn’t we spot it? Unfortunately, financial journalists – and the FT has better-trained financial journalists than others – don’t really understand this stuff, and they join a long list of people that starts with bank regulators, central bank regulators and money managers.’

Blogging and power

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Interesting comment by Peter Preston on the BBC’s Business Editor, Robert Peston.

On both sides of the Atlantic, destitute bankers are looking round for someone to blame. ‘Did the media spook the market?’ asked Tina Brown’s new website (thedailybeast.com) on day one. British political journalists, testifying to a Lords committee, said Peston had ‘played an instrumental role’ in the story. And the Daily Mail, of course, took to the warpath, demanding: ‘Does this BBC man have too much power?’

One answer came fast from the Mail’s own political editor, talking to their Lordships. ‘More power to his elbow, if he’s the journalist leading the charge, good for him,’ said Ben Brogan warmly.

But pause, for a moment at least, and take cautious stock.

The Peston tale that spooked the City last week wasn’t even a broadcast to begin with. It started as a blog. Peston is prolific, blogging continually between studio shuttles. He can write three or four quick blogs a day, telling the net world what’s going on. It’s a brilliant service, where one thing goes with another. He’s a voracious newshound. The BBC has special salience and special clout. All that training comes specially trustworthy.

Yet the wire grows higher and higher. Blogs don’t go through anxious committees of editors, pondering deeply. They are self-publication, performed at the double.

Their speed is part of their attraction, and we’ve reached a stage where one man at his terminal can rain billions over Britain.

Good Times R.I.P.

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This morning’s Observer column…

It’s not just in Iceland that it has dawned on people that there is a connection between the hallucinatory world of securitised assets and the real world of savings and deposits. Silicon Valley has also woken up to the realisation that – shock, horror – it might affect technology companies too.

Just to underline the point, last Tuesday Sequoia Capital, the second-smartest venture capital firm in the Valley (after Kleiner Perkins Caufield & Byers), invited entrepreneurs and chief executive officers from its stable of start-up and established companies to a meeting. According to one report from an insider, invitees were greeted on arrival by a tasteful image of a gravestone engraved with the message: ‘RIP: Good Times.’

The dark heart of resentment

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Scary column by Michael Tomasky about McCain’s tolerance of crazed racism and bigotry. It’s the cornered rat syndrome.

It built up over the course of the week, as supporters at the rallies of John McCain and Sarah Palin started randomly screaming “terrorist!” and “off with his head!” and “treason!” and even “kill him!” at the mention of Barack Obama’s name.

Then there was the man at a Florida rally who shouted at an African-American CNN cameraman: “Sit down, boy.” You don’t need to know your history of the American south to know that “boy”, directed at a black man, is overtly and undeniably racist.

[…]

He [McCain] and Palin – “his Sancho Panza”, as George Will mockingly wrote in the Washington Post – are deliberately stoking rage that is based on lies that they know to be lies (well, that at least McCain knows to be lies). The normally reserved commentator David Gergen said: “There is this free floating sort of whipping around anger that could really lead to some violence. I think we’re not far from that.”

We are seeing the dark, Gothic heart of resentment conservatism. It’s going to be a disgusting three weeks.

The Choice

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There’s a memorable, beautifully-written editorial in the current New Yorker which perfectly encapsulates the choice facing Americans. It concludes:

The exhaustingly, sometimes infuriatingly long campaign of 2008 (and 2007) has had at least one virtue: it has demonstrated that Obama’s intelligence and steady temperament are not just figments of the writer’s craft. He has made mistakes, to be sure. (His failure to accept McCain’s imaginative proposal for a series of unmediated joint appearances was among them.) But, on the whole, his campaign has been marked by patience, planning, discipline, organization, technological proficiency, and strategic astuteness. Obama has often looked two or three moves ahead, relatively impervious to the permanent hysteria of the hourly news cycle and the cable-news shouters. And when crisis has struck, as it did when the divisive antics of his ex-pastor threatened to bring down his campaign, he has proved equal to the moment, rescuing himself with a speech that not only drew the poison but also demonstrated a profound respect for the electorate. Although his opponents have tried to attack him as a man of “mere” words, Obama has returned eloquence to its essential place in American politics. The choice between experience and eloquence is a false one––something that Lincoln, out of office after a single term in Congress, proved in his own campaign of political and national renewal. Obama’s “mere” speeches on everything from the economy and foreign affairs to race have been at the center of his campaign and its success; if he wins, his eloquence will be central to his ability to govern.

We cannot expect one man to heal every wound, to solve every major crisis of policy. So much of the Presidency, as they say, is a matter of waking up in the morning and trying to drink from a fire hydrant. In the quiet of the Oval Office, the noise of immediate demands can be deafening. And yet Obama has precisely the temperament to shut out the noise when necessary and concentrate on the essential. The election of Obama—a man of mixed ethnicity, at once comfortable in the world and utterly representative of twenty-first-century America—would, at a stroke, reverse our country’s image abroad and refresh its spirit at home. His ascendance to the Presidency would be a symbolic culmination of the civil- and voting-rights acts of the nineteen-sixties and the century-long struggles for equality that preceded them. It could not help but say something encouraging, even exhilarating, about the country, about its dedication to tolerance and inclusiveness, about its fidelity, after all, to the values it proclaims in its textbooks. At a moment of economic calamity, international perplexity, political failure, and battered morale, America needs both uplift and realism, both change and steadiness. It needs a leader temperamentally, intellectually, and emotionally attuned to the complexities of our troubled globe. That leader’s name is Barack Obama.

Elsewhere in the same issue, James Wood has a nice piece about the way the McCain camp has portrayed Obama’s literary and oratorical skills as ‘evidence’ of a character flaw. And then, of course, there’s Palin:

Hearing her being interviewed by Sean Hannity, on Fox News, almost made one wish for a Republican victory in November, so that her bizarre locutions might be available a bit longer to delve into. At times, even Hannity looked taken aback; his eyes, slightly too close to each other, like the headlamps on an Army jeep, went blank, as if registering the abyss we are teetering above. Or perhaps he just couldn’t follow. The most revealing moment happened earlier, when she was asked about Obama’s attack on McCain’s claim that the fundamentals of the economy are sound. “Well,” Palin said, “it was an unfair attack on the verbage that Senator McCain chose to use, because the fundamentals, as he was having to explain afterwards, he means our workforce, he means the ingenuity of the American people. And of course that is strong, and that is the foundation of our economy. So that was an unfair attack there, again, based on verbage that John McCain used.” This is certainly doing rather than mere talking, and what is being done is the coinage of “verbage.” It would be hard to find a better example of the Republican disdain for words than that remarkable term, so close to garbage, so far from language.

Analysis: End of the swaggering City — and of New Labour economics

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Nice analysis in the Guardian…

There are four big conclusions.

The first is that the long period of economic expansion that started in September 1992 with the pound’s forced departure from the European exchange rate mechanism is now over. The IMF warned yesterday that Britain’s economy will shrink next year for the first time in 18 years, with a risk that the forecast 0.1% decline in GDP will be over-optimistic. The way things look, that’s a reasonable call.

The second thing to disappear yesterday was the notion that the British economy could survive on finance alone. For the past 20 years, policy-makers in the UK have convinced themselves that the might of the City could compensate for the country’s inability to make anything. The notion that the ever-widening trade deficit was merely a temporary phase while Britain adjusted to a weightless, virtual, financially-driven future has now been exposed for the grotesque fantasy it always was.

Thirdly, the bankruptcy of the City also represents the bankruptcy of New Labour economics, which has been based to an unhealthy degree on a desire to ape the go-getting, deal-making culture of the United States.

Labour governments of the past have always had industrial strategies, which have normally been based on the idea that manufacturing matters. Since 1997, ministers have convinced themselves that Britain had a comparative advantage in financial services and that therefore industrial policy should be based on giving the City what the City wants. The light-touch regulation of financial services was but one expression of the almost total obeisance to big capital.

The manufacturing industry, by contrast, was allowed to wither on the vine, even though the idea that developed western nations can no longer compete industrially with the emerging nations of East Asia is countered by the remarkably good performance of high-cost countries such as Germany and Sweden.

Britain would be a cleaner and more prosperous country if a fraction of the effort spent on making London safe for speculators had been reallocated to harnessing the nation’s raw scientific talent into a thriving environmental technology industry.

Finally, the dominance of the City is over, at least for the time being. What we have seen over the past 14 months is the humbling of the City: what the Greeks would have called nemesis following hubris.

Far from using their freedom from regulation to take wise decisions that would benefit all, banks plunged into investments about which they knew little or nothing. Far from allocating capital in an efficient manner, the credit crunch that has resulted from the orgy of irresponsible lending has led to a dearth of funds for the small businesses that sorely need it.

What we have seen in the first week of October 2008 is a broken-backed industry that promised to be at the cutting edge of the free market, but in reality cannot survive without the largesse of the state.

When it came to it, all the bastions of deregulation – the City, the CBI, the Conservative party – crumbled because they could see the writing on the wall. Without funding from the taxpayer, virtually no bank would be safe from the global financial virus.