Launch of research by London School of Economics on financial journalism

I attended the launch yesterday by the London School of Economics' Polis media team on a two year research programme on financial journalism. Titled "What is Financial Journalism For? Ethics and Responsibility in a time of Crisis and Change". This is a continuing programme and the research team are looking for feedback.

Some of the headline points from the research findings were as follows:

• Lack of resources to cover stories is growing concern. Apart from one or two examples sucha s the Financial Times and even they are seeking to strengthen their reporting team; there is a growing concern about the time, training and skill of journalists to fully cover stories. An interesting comment from a journalist from The Banker magazine present was the complexity and breadth of the linkeages in financial markets which had grown up in recent years was not understood or perceived by regulators and was in turn a major exercise for journalists to follow.
• A Social Compact. Journalists in most major markets have a privileged position in the eyes of the law, but should these be strengthened further. Damian Tambini the author of the report highlighted whether the Freedom of Information Act should be extended to areas at the moment excluded due to "commercial sensitivity".
• The role of financial PR has had a negative impact on communication flows with senior management increasingly unavailable to be interviewed by financial journalists. This is an aspect of the research programme which I intend to bring to the attention of the UK Chartered Institute of Public Relations as it is an aspect which I think the industry needs to address as part of the wider reflection on "how do we go from here in financial markets". In some respects the financial PR industry is operating a mode of PR very much based on command and control of information flows which is now outdated and other parts of the PR industry are starting to move towards a more conversational and collaborative approach. But it is concerning that potentially the defensiveness of the financial PR teams hindered the free flow of information and added to the overall lack of transparency in financial markets.

These were the key points which struck me, but I intend to return this report on another posting when I have read it all, as opposed to commenting on the presentation at the LSE.

Credit rating agencies - prepare to be frightened

Take a look at this week's Financial Times weekend magazine with an excellent article about credit rating agencies. The best narrative I have come across describing the slippery slope in this case Moody's which took from research based culture to publicly quoted enterprise with short term agenda and focus on bonuses.


Another rather shocking piece of evidence is an announcement by Standard & Poor's on October 20th 2008 announcing that 760 mortgage backed securities issued in 2006/7 and given a range of ratings by S&P have been downgraded to negative (access to this document does require registration with S&P). The document gives a fascinating insight into the sub-prime crisis. The sheer amount of money raised through these asset backed securities is frankly awesome with a number over $1bn. What is frankly unbelievable is the number of these securities which were given AAA status. AAA status is given to very few countries and companies but apparently to many of these sub-prime mortgages.

Are the credit agencies in the clear or is there time in the spotlight yet to come?

Randomness of search uncovers gem

It is indeed fortunate for any economist to bring out a paper in the last month which begins its introduction; "Are credit markets particularly vulnerable to contagion effects..." and which is titled - Contagion in the Credit Default Swap Market. In fact it is based on research carried out in 2005 looking at the case of Ford and General Motors so it is the result of lengthy research and it so happens that publication date could not be better timed with all the problems of credit default swaps which of course led to the demise of AIG among other casualties.

The paper has come out of CEPII which is the leading French research establishment for the international economy.

The reason for the heading is the randomness of finally finding the piece. An email newsletter from Xerfi, the French economics research organisation, highlighted the work of Michel Aglietta whose work has been out of fashion with its emphasis on the need for greater regulation, but of course is now very much back in fashion, as financial markets move away from self regulation. Michel is an adviser to CEPII an organisation, I had not heard of, but seems an excellent resource on international economies.

Russia starts investor relations society

Russia has just started its own investor relations society highlighting the growing influence and role of the investor relations function within organisations.

I await to see if the investor relations community and financial communications PR function feel that they need to re-examine their role in the financial crisis. So far I sense no soul searching but it is early days. One of the over-riding themes whether sub-prime; credit default swaps; mortgage backed securities; strength of bank balance sheets has been the overall lack of transparency. Does investor relations feel that it has to look at its own role in this process?

You might be interested in a guide in both English and French produced by Observatoire Communication Financiere which brings together Euronext the owner of CAC; investor relations groups and investment analysts as well as the leading financial French legal firm of Bredin Prat .

Discourse and dialogue has become growing feature of financial news coverage

A rapidly developing feature of online news coverage is Comments. From articles to blogs, readers are now actively encouraged to respond. A French site called Rue89 shows this to good effect where news is seen as a collaborative effort between the author and the readers. Personally, I have changed my reading habits and find I am equally interested in reading the comments or some of them and the original story and blog.

The financial crisis has highlighted the impact of this dialogue and discussion. Huffington Post, the world's most read blog, will typically get over a 1000 comments on mainstream pieces. Take the lead story about the failure of the vote in Congress on Monday night. The Financial Times news-by-the-minute blog and community site, Alphaville has comments which at times of crisis in recent weeks have gone as high as 500 comments. While economist Nouriel Roubini regularly gets several hundred comments on his increasingly influential blog.

What is interesting is that anyone following the comments on blogs in the USA would have seen that the US financial rescue package, $700bn, now known as TARPS, was going to be a very difficult sell. Main street America was furious at the idea of Wall Street bankers being bailed out. Mainstream media did not really reflect this conflict strongly enough and perhaps was an example where they saw their loyalty to the markets and perceived protection of them, not their readers. It will be interesting to see how the debate develops in the media about going back to Congress a second time. Even experienced commentators are unsure of the measure and it was interesting to note that George Magnus, a senior economist with UBS believes that the money could be used in other ways.

Charles Rose and interview with key commentators

Looks like a good overview and with the whiff of gunpowder as broadcast at the height of the financial crisis last week. Charles Rose interviews Larry Summers, Nouriel Roubini and others.

Who speaks for the financial world?

It is interesting to note the inability of senior figures in the US and UK financial community to stand up and be counted, even in these difficult times and take part in the intense debate and discourse which is happening across the media about the future of the industry. After all one of the narratives is the end of capitalism.

This might be contrasted with France where David Rothschild was interviewed by Le Figaro about the developing crisis last week and as well as analysing it also managed as one would expect from one of the scions of a great banking family to give messages of reassurance and comfort to readers and highlighted the virtues of traditional banking and the strength of most European and Asian banks. There has been no similar interview which I have come across from US or UK leading financial figures over this last week.

Plenty of comments from regulators and politicians and commentators, but I am not conscious of a senior financial figure providing industry leadership in the US and UK or participating in the debate such as the head or Chairman of one of the major banks. I would argue that this crisis has really brought a new generation of financial thought leadership to the fore with online media playing an important role in bringing a wider range of voices to the debate.

Several figures who have gained particular prominence in recent weeks are:

Robert Peston of the BBC. His comments on BBC News, the Today programme and his blog have made him perhaps the most influential financial commentator in the UK. He has broken some major stories (Northern Rock and HBOS and LloydsTSB) but his commentary has also given ordinary viewers and readers a deeper insight and a level of personal perspective which we have not seen before from a financial commentator on the BBC. It has certainly given an added dimension to the debate in the UK.

Bill Gross of PIMCO, the world's largest bond dealers, a regular commentator on CNBC is a masterful commentator and although he may have used his postings and interviews to promote his trading position has also been a a thoughtful analyst of the situation. Note that CNBC, according to Hitwise has become one of the new media success stories in recent weeks with significant increase in readership and participation.

Another leading figure in the gathering debate online is Nouriel Roubini whose blog last week was gathering over 600 comments on some topics. Roubini, Professor of Economics at SternBusiness School in New York and known as a leading sceptic for over six years about the current discredited financial regime has established a powerful position in what might be called an online financial counter-culture.

This failure to participate by leading players is important for the legitimacy of the industry. It is interesting to note that the hedge funds and asset funds seem more active in the process. Yes, the finance industry can do deals in smoke filled rooms and get bailed out; but a modern online democracy requires participants legitimacy to be constantly topped up in the public sphere (Habermas). It will be interesting to see how long it takes before they realise the need to do so.