During my 40-plus years in journalism, I learned one lesson very early: never take advice from the office experts. Do not ask the property correspondent which house to buy, the motoring correspondent which car to choose, the gardening columnist which flowers to plant, or the education correspondent which school to send your child to. And above all, do not ask business and finance writers where to invest your money.
The world financial crisis exposed the failures not only of government, regulatory bodies and banking but also of journalism. Nine months before Northern Rock collapsed in September 2007, the Times heralded 'a new era of bigger returns for shareholders' from a company 'firing on all cylinders'. The same paper gave the launch of Northern Rock's 'silver savings online account' for the over-50s 'an unequivocal thumbs up' even after the bank had issued its June profits warning. As late as August, the Telegraph assured readers that customers were safe and that Northern Rock offered a 'compelling combination' of potential dividend yields at low cost.
Journalists performed little better over the following year as the Icelandic banks headed towards their collapse in autumn 2008. Several listed Heritable, Kaupthing and Landsbanki (Icesave) in their 'best buy' savings tables until the weekend before those banks crashed. Personal finance sections failed to explain that, if a bank comes top of such tables, its high interest rates probably represent what financiers call 'a risk premium', which compensates investors for the chance they will lose everything. Nor did they explain that a government money-back guarantee was of little use if the state, like Iceland, also risked bankruptcy. Some journalists had the grace to apologise for their errors, though it was hardly reassuring when they added that they or their families had themselves put money into Northern Rock or the Icelandic banks.
When it came to their annual share tips for 2008, the year when the FTSE100 would plunge by roughly one third, journalists' performance was equally lamentable. The Telegraph tipped Yell, British Land, Punch Taverns and Standard Chartered, all of which fell more than the FTSE generally, by amounts ranging from 39 per cent to 92 per cent. The Sunday Times advised putting money into the Brazilian, Israeli and Russian stock markets, which fell by 38 per cent, 51 per cent and 72 per cent respectively in 2008.
Few suggested staying out of the stock markets
Few, if any, pundits suggested 2008 might be a good year to stay out of stock markets entirely. Even as the FTSE dipped below 6,000 – it would end the year at 4,434 – the Times personal finance editor wrote that 'few serious economists are predicting a UK or worldwide recession. . .there are reasons to believe that stock prices will not end the year lower than they are today'. In January 2008, Anatole Kaletsky, the notoriously Panglossian economics columnist for the Times, wrote that the trouble was almost over and that stock markets 'will rise in 2008'. Several commentators argued that the crisis would be limited to the financial sector and would not affect the wider economy.
Curiously, some critics - notably Richard Lambert, a former Financial Times editor, now director general of the CBI - complained that by 'careless headlines or injudicious reporting' ('Terror stalks the stock market', that kind of thing), journalists were guilty of 'self-fulfilling prophecies of a very serious nature' which the Press Complaints Commission should attempt to curb. But if journalists were guilty of hyping up the crisis, they were far more guilty of failing to warn in advance that a long boom in financial markets rested on dubious foundations. They may have deepened the crisis somewhat but, to a far greater extent, they helped to inflate the boom by encouraging readers to pile into what looked like an ever-rising stock market.
Several commentators acknowledged this. The Observer's Will Hutton said in November 2008 that journalists had 'lost their senses' and 'suspended their judgement'. The Financial Times performed better than most, with its correspondent Gillian Tett emerging as just about the only journalist who grasped the dangers of a new financial instrument called 'derivatives'. But its editor Lionel Barber, lecturing at Yale University in April 2009, said 'financial journalists were too slow to grasp that a crash in the banking system would have a profoundly damaging impact on the real economy'.
Outright criminal behaviour
What accounts for this failure? This is not a trivial matter since we are talking about people's livelihoods, homes, pensions and lifetime savings. A small number of high-flying financiers, by reckless and sometimes dishonest, greedy or even outright criminal behaviour, threatened to ruin us all. We were, we are now told, within a whisker of every bank locking its doors and shutting down its cash machines, plunging us back to the age of barter. If ever there was a case for journalistic whistleblowing, this was it. And a few far-sighted journalists - such as Tett and the Times and New Statesman columnist Patrick Hosking - warned of trouble ahead. So did some reputable economists and financiers, such as Ann Pettifor, of the New Economics Foundation, who wrote in the New Statesman in 2003 (when I was editor) of a growing 'crisis of debt and deflation'.
But like the UN inspector Scott Ritter, who insisted before the Iraq war began that the Iraqi President Saddam Hussein had no weapons of mass destruction, they were largely ignored and treated as marginal, slightly eccentric figures. Journalists went with the consensus, as they often do. Dissenters were often dismissed as the agents of leftist conspirators, intent on undermining capitalism. Journalists accepted what the captains of industry, finance and politics told them: that slumps had been abolished and the bubble would never burst. The comparison with Iraq, where journalism also largely failed, is indeed a telling one. As a senior New Yorker editor put it, 'business journalism was in bed with, or embedded, in the [financial] institutions the way that war correspondents were embedded in the units in Iraq'.
Some of the failure was simply the result of ignorance. Being a banking correspondent isn't like being an education or health correspondent where you are likely to be as well paid (or at least not hugely worse paid) than most of the people you are writing about. Any journalist who fully understood the workings of financial markets would be inside the game making a small fortune, not on the outside reporting it. Indeed, many of the brighter business writers have in recent years been seduced into the financial services industry to work as PRs. But even basic skills - which might enable them to see that something is amiss without knowing exactly what it is - are frequently lacking. Few journalists, even business journalists, are very numerate and, as Barber acknowledged, most have a weak grasp of accounting practice and can't, to put it crudely, read a balance sheet.
Investigations costly, time-consuming and uncertain of outcome
Then there is the lack of resources from which all newspapers increasingly suffer. Investigations into financial affairs are time-consuming and uncertain of outcome, particularly given the readiness with which rich corporations reach for their lawyers. The result may make waves, but it rarely provides what an editor would consider a good, racy read. And so arcane are many corporate accounts that, even after the most careful and thorough checks, a newspaper may still get the wrong end of the stick, as the Guardian found with its investigation into Tesco's use of tax avoidance schemes.
These constraints were significant factors in the newspapers' inability to give early warning of impending disaster. But the 'embedding' factor - journalists' willingness to accept the conventional wisdom in the industry they covered – was by far the most important. I do not intend to imply outright corruption by pointing out that most newspapers, particularly the upmarket ones, receive substantial revenues from, for example, property advertising or bank advertising of mortgages, savings accounts and other 'financial products'. Nor do I suggest that advertisers can successfully threaten to withdraw support if there is negative coverage; the walls between editorial and advertising work tolerably well in the British nationals. But advertising is bound at least to have a subliminal effect. Property sections tend to shrink when the housing market slumps. No property journalist, therefore, will go out of his or her way to talk up the prospect of a sharp fall in house prices. Similarly, the share tipster who advises readers that it's best to leave their money in a bog-standard savings account is writing himself or herself out of a job.
As for more general business and economics reporters, they rarely see themselves in the role of watchdogs, still less as critics of the capitalist system in general. Business sections, including the Financial Times, are mostly written for insiders. The Guardian alone places its business and finance pages (Mondays to Fridays, but not Saturdays, when it gets easily its highest readership) in the main run of news before the comment pages. The others, when they are not in separate sections, tend to be buried near the obituaries. Only the Guardian makes persistent attempts to expose how business rips off consumers, overpays its senior executives, underpays its workers, avoids paying tax, trashes the environment and makes deals with dictators.
Business journalists mostly fans of capitalism
It has been said of sports journalists that they are fans with typewriters. The same can be said of business journalists who are mostly fans of capitalism, just as labour correspondents (now all but extinct) were fans of trade unions. If they make predictions about economic prospects in general or share prices in particular, they should be taken with the same cellars of salt as you would take the football writers' predictions of who will win Saturday's top-of-the-table match. All specialist journalists are vulnerable to producer capture, but business and economics writers are more vulnerable than most, because the prevailing neoliberal ideology is so all-encompassing and so pleasing to those who own and edit newspapers.
Again, like all specialist journalists, they rely on the insiders for information and potential exclusive stories. It is hard in such circumstances to retain an independent mind. Deregulation, the journalists' sources told them, was a good thing. So, as Barber argued, crucial regulatory decisions - such as a US move to loosen bank debt restrictions in 2004 - went unexamined. Derivatives, hedge funds and securitised assets, the sources said, were brilliant, innovative financial 'instruments' that would usher in a new age of eternal, global prosperity. No journalist observed that these are just the latest jargon for what financial markets have been about since the Middle Ages - debt and transfer of risk.
But it is surely unfair to blame financial journalists alone. The press and its employees had a vested interest in the 'irrational exuberance' that preceded the financial crisis. Despite circulation declines and the growing migration of advertising to the internet, most newspapers continued to make substantial profits. Most journalists own property and money-purchase pensions, and many also hold shares (if only through tax-free savings accounts), though a quarter of the adult population owns none of these things. If they failed to question whether the party could go on for ever, it was because they, like the people they wrote about, didn't want it to stop.
Peter Wilby is a former editor of the New Statesman and the Independent on Sunday. He is now a media commentator and New Statesman and Guardian columnist.
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