Panic goes to exuberance

Today market sentiment has rapidly changed. European markets have shot up over 7%. But is this exuberance rational? The US taxpayer is taking on a huge amount of extra debt and the next week or so will bring further consideration of other parts of the financial and global economy to be affected by the crisis.

Will AIG survive?

The screw turns and another financial giant is in the spotlight with administration a very real option. AIG, one of the world's largest insurance companies, better known in the UK as sponsor of Manchester United, is urgently seeking additional funds at the same time as it faces a credit rating downgrade.

What a credit rating downgrade. At 2107 Eastern Time yesterday (Monday 15th Sept.), Moody's announced rating changes - all downgrades - to the unsecured debt of 79 funds/organisations related to AIG. AIG unsecured debt now has the same rating as the bond issued by Maricopa County in Arizona for school improvements at A2. The implications for AIG are significant and may lead to payouts to bond investors for losing its triple A status. The downgrade was particularly severe as all three credit agencies carried it out in the same timescale; a move highlighting the fragility of the situation.

In media terms, each move by different actors across the financial stage reinforces the common narrative of uncertainty, fragility and crisis. Comparisons with the Great Crash of 1929 are now common from financial commentators. The AIG story perhaps adds another element to the developing narrative - that of powerlessness by the authorities in the scale of the problem. The authorities will be keen that this element does not develop further and may be an unsaid factor in saving AIG. The next few days will tell us more.

One of the most valuable short term PR campaigns?

Measuring "success" in a public relations campaign, is often not straightforward, and particularly in the short term.

Well Bill Gross, founder of PIMCO, one of the world's largest dealers in bonds, and leading authority and commentator on bonds, has shown how to do it and tie it in with his investment strategy.

He invested heavily in mortgage bonds issued by Fannie Mae and Freddie Mac, the main lenders of mortgages for the US residential market, to the tune of over $100bn according to the Financial Times. This was at a time when many in the financial community were becoming very concerned about the viability of both organisations and were selling both bonds and equity in both organisations. When the US government acted, and nationalised them, or put them into what the US Treasury called "conservatorship", it rescued the bond holders of Fannie Mae and Freddie Mac and allowed the shareholders to take the pain, giving PIMCO a major trading gain worth $1.7bn.

As well as being a consummate dealer, Bill Gross also knows how to work the media and through his highly regarded newsletters on bonds and through media such as CNBC he has pushed the agenda, that the US government was going to need to take a more active role with Fannie Mae and Freddie Mac and inject more capital. Some in the blogging community have queried this apparent conflict of interest and the role of other industry figures and commentators.

It will be interesting to see whether mainstream financial media or even the regulators take a look again at Bill Gross' success and high profile role as a commentator and decide that there are potential conflicts of interest. It could be argued that Bill Gross has never hid his trading strategy and understands that in today's 24x7 global markets; transparency or advocacy of your trading position is part of the legitimacy of your trading position.

The Wall Street Journal does a summary of winners and losers over the affair and Bill Gross and his trading strategy and PR campaign are one of the clear winners from the affair.

Lehman story shows signs of global fatigue over financial stories

Have you noticed that the developing Lehman Brothers story is not front page news in many countries? Students on the programme highlighted that in nearly all countries looked at, the media is absorbed in other stories. Is this a sign that perhaps the media are judging that public interest in collapsing US banks is no longer an issue central to many readers' lives?

Role of media in credit crunch

The number of conversations over the summer which have turned to the global credit crunch and very quickly followed by "the press/BBC/etc have made it worse by their constant coverage of bad news stories." You cannot really say "but hang on, that is their job and there have been some rather major stories to report - sub-prime, collapse of CDOs, BNP Paribas closing number of funds due to failure to value, massive losses by UBS, Merrill Lynch etc, collapse of Bear Stearns, collapse (as good as) of Fannie Mae and Freddie Mac etc, etc.

One could almost say the role of the media over the global credit crunch has become an urban myth. It is interesting to see that so many people perceive the media to be all powerful in terms of formulating society's view over event(s) while media itself is in fact feeling rather weak as advertising and readership declines and TV audiences fragment. Or has the media discovered that it can still be hugely influential and if so why over financial stories not some other issue like poverty, the environment etc.

As a postscript, if you had difficulty understanding postmodernism as a concept, then people's perception of the role of the media over the global credit crunch is a classic example. An aspect of postmodernism is that "truth" and "reality" is socially constructed. By believing that the press have made the global credit crunch worse by its reporting, we are acknowledging that the "reality" of these events is heavily influenced by the media's coverage of the event. Even though the media might well argue they were reporting the reality of events on the ground, and leading figures such as the UK Chancellor agree with them.

Global credit crunch - when did it start in the eyes of the media?

I am writing this with news just announced of Fannie Mae and Freddie Mac having been taken into public ownership. Such an event would have seemed inconceivable 12 months ago, but this latest event indicates the ability of the sub-prime crisis to continue to spread out and damage not just financial markets but the "real" economy as well. So how was the story first picked up by the financial media and what are the media and analysts saying was the starting point?

A search on Google News on "start of credit crunch" comes up with the first entry in Moneyweek, 11th July 2007 which had a piece titled "Is this the start of a global credit crunch."

According to Google News, the BBC was using the term a month later, with insights from leading financial analysts.

The Independent on Sunday has a good timeline and a major survey this August looking back to the start of the credit crunch in August 2007, going so far as to name August 9th 2007 and the closing of several funds by BNP Paribas due to sub-prime problems in the US as the starting point.

The BNP Paribas press announcement (English version) announcing the development still reads rather shockingly even with the benefit of hindsight. "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating." Full marks to BNP Paribas for their transparency over the situation at that point - how many banks would have been so honest?

So what did the Financial Times have to say on those events back in August 2007? What is interesting is the potential severity of the situation was understood immediately by the Financial Times and its article the following day seem remarkably prescient. Bear Stearns the month before (July 2007) and then BNP Paribas were the first two markers in a timeline which leads to Fannie Mae and Freddie Mac. Where next?

Schadenfreude and a play on words

The collapse of Peloton or certainly of its major hedge fund has given the financial media a good news hook for its coverage of the story. Peloton is a term from cycling describing the mass of cyclists in a race, all bunched together. When one falls in the peloton he or she can bring down many others. For journalists that image is a powerful one suggesting wider ramifications not just the fall of one hedge fund.

Today's Financial Times (6th March) covering Pelton's public apology to its investors suggests that problems for hedge funds are increasing as banks are requiring much higher margins to lend to hedge funds. Mr Beller, the former Goldman Sachs trader who along with other Goldman Sachs' colleagues founded the company was quoted as saying "In some cases, he said, margin requirements doubled or tripled the cash required to be put up to buy loans – moves that also threaten other leveraged investors."

The remarkable collapse of Peloton's ABS Fund - valued at £2bn in January to near worthless today - has actually led so far to little schadenfreude on behalf of the media. Schadenfreude being the German word for pleasure in someone else's misfortune. But the fact that the banks are requiring so much extra margin to lend to even supposedly well run hedge funds, does illustrate that the business model of some or many hedge funds can be particularly vulnerable to external shocks. Perhaps it is time for all the major investors to take their money out of hedge funds and put them into a nice safe bank account - such as in Lichtenstein, as long as you have told the tax authorities.