INAUGURAL LECTURE The Future of Financial Journalism in the Age of Austerity Steve Schifferes, Marjorie Deane Professor of Financial Journalism, Department of Journalism, City University London The global financial crisis which began with a whimper in August 2007 – when BNP Paribas announced froze access to two of funds which were based on sub‐prime assets – spread with terrifying speed and depth around the world. Its consequences are not over, and will be with us for some time to come. By 2010, the global crisis had reduced global wealth by some $50 trillion, cost governments some $10 trillion in bail‐out costs, and had reduced world trade by some 10% and global economic output by 5%. With governments reeling from the consequent budget deficits, major cutbacks in public services are underway from Athens to Whitehall to Washington. But the crisis had another outcome that might prove even more damaging in the long‐term: the further erosion of trust in our institutions, from bankers to regulators to governments and indeed, to journalists. The inability to foresee the crisis and the lack of adequate mechanisms to deal with its aftermath, has produced a cynicism about the moral fecklessness and incompetence of the key actors in the drama. It has been an interesting time to start a new programme in financial journalism, and I would like to thank the Department of Journalism, the Marjorie Dean Foundation for their generous funding, and our industry collaborators the Financial Times and the BBC for their support for this programme. 1 The key tasks for the next generation of financial journalists are: ‐to re‐establish the trust of the public in their professional judgement ‐to provide an independent perspective on key developments ‐to understand the news from a global point‐of‐view ‐to make sense of the welter of financial information in a timely fashion So how should we evaluate the role of journalists in the financial crisis? To answer this question I would like to look at the changes in financial journalism in the past twenty years and how they affected the coverage of the crisis. When I started as a full‐time business journalist some twenty years ago, the profession barely existed outside of the Financial Times or the Economist. What business and financial journalism that existed in the mainstream media was in its own ghetto where it struggled to get out onto the main news bulletins or onto the front pages. I even recall that the economics correspondent wanted to have nothing to do with the BBC business team at the time! There was very little training for financial journalists, and many of my colleagues regarded it as a stepping stone to something more glamorous in politics, entertainment or even consumer affairs. Coverage was very much driven by company news and the stock market, and a certain cosy relationship existed between chief executives who were willing to be interviewed and the business journalists who were keen to get interviews with them. 2 Growing pace of change In the past twenty years we have had a revolution in the coverage of business and financial issues. Firstly there has been a big increase in the number of business or consumer finance programmes on television and in the size and scope of the business pages in the main newspapers. This has been driven by the need for individuals to know more about their own financial situation as they are being required to take more responsibility for it – for example, from the decline of occupational final salary pensions. And it is also a response to the extraordinary fluctuations in asset prices and therefore the wealth people have – whether in shares or house prices which have become one of the obsessions of the British middle class. Secondly, the amount of financial information available to journalists and the public has grown exponentially, driven both by the internet and the availability of wire service feeds. One only has to look at the volume of information available today to both journalists and traders from a single Bloomberg terminal to see that it is almost impossible for any one person to comprehend it all. The rise of the internet and cable news channels has also feed an insatiable demand for financial news which has increased pressure on reporters from newspapers, broadcasters and wire services alike. Thirdly, we have seen an expansion of analysis and comment in the financial sector, often driven by a need for major publications to differentiate themselves from “commoditised news”. The latest version of this trend has been the purchase of “Breaking Views” a commentary service founded online by former Financial Times Lex columnists. We have also seen the growing use of syndication with wire services business news copy in major newspapers. Fourthly, there is an increasing trend towards internationalisation of business coverage. The number of foreign bureaux of wire services in particular is being increased and international stories increasingly dominate the financial press. The attempt by the Financial Times to establish a presence in the USA, and the Wall St. Journal to tackle Europe, is another part of this trend – although so far it has been 3 markedly successful. The increasing spread of crises around the world, from the Asian crisis to the dot.com boom, has added to this impulse. But we should not exaggerate the global nature of business news. In the major emerging market countries like China and India, a raft of both state‐owned and private media organisations have vastly increased the size and scale of business coverage, both in print and on television. All these trends have led to changes in the way financial journalism was produced, some of which negatively rebounded on the profession. The huge volume of detailed information led to a reinforcement for many publications of the “beat” system of reporting, where journalists specialised in a narrow section of the financial world such as the bond market, oil prices, or a particular industry sector. This led to the growth of a “silo” mentality where reporters were unable to connect the dots between say, financial markets and housing markets. Secondly, the demand for more and more information from a limited number of sources – the companies and the markets themselves – led to ways of limiting and controlling access to such information. Unlike politicians, companies are not required to speak to the public and the press unless they want to. The role of sophisticated financial PR companies in “managing risk” for chief executives by limiting exposure has become a much more important part of the equation than 20 years ago. Thirdly, very volume of information and the demands on journalists – and the increased pressure of time – produced sometimes a formulaic and superficial approach to reporting, with more volume and less substance. In particular, the analysis and commentary became increasingly separated from the role of reporting on the ground. 4 And finally, very expansion of financial journalism also increased the split between the two very different audiences that business journalists seek to address – the sophisticated investor or trader (the City audience) and the newly awakened general public. 5 The financial crisis and journalists The financial crisis cast a harsh light on the newly enlarged world of financial journalism, and raised many questions about its effectiveness. It has been argued that the financial press had become corrupted by being too close to its sources, and had been swept up by the ideology of free markets, In the heat of the crisis, however, the initial attacks on the press coverage of the crisis came from those – in the City, in business, and indeed in Parliament – who should have known better, who blamed the press for spreading panic and false rumours that exacerbated the collapse in the financial system. There are few financial journalists who have the dubious privilege of a full page attack on his role on the front page of the Daily Mail as the BBC’s Robert Peston did at the height of the crisis, In Britain, where the press lacks the First Amendment free speech protections of the US constitution, there is a need to be continually vigilant on attacks on the ability of financial journalists to report on a financial crisis, such as those recently proposed by the FSA.. A more serious criticism – made particularly strongly in the US – is that the financial press should have been able to spot the serious nature of the looming crisis – and the increasingly risky behaviour the banks and investment houses – in time to prevent the financial collapse that eventually occurred. Now a crisis – as Professor Charles Goodhardt said in a seminar at City last year –is by its nature sudden and unpredictable, and it would be astounding if journalists had been able to predict something that neither regulators nor economists saw coming. 6 However, I think that financial journalists could have done better in both examining the roots and spotting the serious consequences of the crisis sooner – and why they didn’t reveals much about the nature of the trade. First, there was a kind of group‐think, a “cognitive bias” to use the fashionable words of behavioural economics – in favour of the efficiency of free markets, and in particular their ability to price risk, which was shared by policy‐makers, economists and financial journalists alike. The limitations view was perhaps most elegantly expressed by Adair Turner, the chairman of the Financial Services Authority during the crisis, in his post‐mortem speech in 2009: “We have to recognise that what occurred was not just a crisis of specific institutions and a failure of specific regulations, but a crisis for the entire intellectual theory of efficient, rational and self‐equilibrating markets.