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Should financial journalists have been able to predict the global economic crisis? From last week's Arab Media Forum, Soren Billing reports.
Business media around the world has been caught in the firing line for failing to pick up on signs of trouble in the global economy in the run up to the current crisis.
Financial news network CNBC in particular, has been the target of much criticism, with some media pundits accusing the channel of being little more than a stock market cheerleader.
A YouTube clip of ‘Mad Money' host Jim Cramer made the rounds in the blogosphere last year after he told a viewer to keep his shares in US investment bank Bear Sterns days before it collapsed.
"No! No! No! Bear Stearns is not in trouble. If anything, they're more likely to be taken over. Don't move your money from Bear," he said in the infamous
March 11 broadcast.
Shares in the company lost 92 percent of their value in the week that followed, after the Federal Reserve Bank of New York provided the bank with an emergency loan and Bear merged with JPMorgan, in a deal that gauged the firm at 10 percent of its market value.
So, should the financial media have done more digging and less shouting à la Kramer, in the years that preceded the crisis? Yes, argues Martha Hamilton, a 35-year Washington Post veteran.
"When the fundamental rules of a business fundamentally shift, that should really cause you to dig," she says.
"When lenders stop caring about whether borrowers can actually repay their loans, that should signal that something major is going on."
In June of 2005, Hamilton and a colleague took a trip to the international body for the bond market industry, now called the Securities Industry and Financial Markets Association, to educate themselves about collateralised debt obligations and related instruments. She came back without a story to write.
"I had what would have been a highly speculative story, saying there were these complicated instruments out there, and that they might be risky. And it's really hard to get good play for a story that's speculative," she recalls. "The other reason is, I got back and immediately had to turn my attention to other stories."
While journalists in the Middle East may not have had reason to be concerned with subprime mortgage exposure at their own banks, the possibility of a regional real estate bubble was barely mentioned until a collapse was well underway.
Many reporters also bought into theories of emerging markets "decoupling" from the West, and a booming Chinese and Indian market underpinning oil demand for the foreseeable future.
But not everybody agrees with Hamilton's criticism of her own profession. Ihsan Jawad, founder of Dubai-based financial news and data provider Zawya, insists that journalists should refrain from making macroeconomic predictions, and says that it was "naïve" to expect journalists to foresee an outcome that most of the world's top economists failed to anticipate.
"I think the best thing the media can do is to focus on corporate governance and report the facts," he says. "There are enough paid people out there to figure out whether things are a bubble or not."
Steven Hall, chief executive of CNBC Arabia, refutes allegations that his network pays too much attention to the stock markets and that it neglects to cover other, more important, parts of the economy.
