The Future of Financial Journalism in the Age of Austerity

8/7/2019 The Future of Financial Journalism in the Age of Austerity

1/30

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 fundswhich 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,

1


2/30

and our industry collaborators the Financial Times and the BBC for

their support for this programme.

2


3/30

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 existedin 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 wasvery 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.

3


4/30

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 orhouse 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

4


5/30

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

markedly successful. The increasing spread of crises around theworld, 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

5


6/30

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.

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.

6


7/30

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 BBCs

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.

7


8/30

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.

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 didnt 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 ofefficient, rational and self-equilibrating markets.

In the aftermath of the crisis we must therefore challenge

previous assumptions for instance that increased liquidity

in all markets is always beneficial, or that financial

innovation will always deliver beneficial results.

8


9/30

The failure of imagination involved in group-think was also a

difficulty in finding dissenting views, or taking them seriously, such

as Professor Nouriel Roubini of NYU, dubbed Dr Doom by the press,

or Professor Joseph Stiglitz of Columbia. There were of course alsodissenters in the markets, such as the hedge funds, who eventually

shorted the banks, as outlined post hoc, of course, by journalist

Michael Lewis in The Big Short. But this was a broader failure shared

by most public intellectuals and major institutions, such as the US

Federal Reserve and the International Monetary Fund. The recent

Independent Evaluation Office report on the IMFs failure to

anticipate the crisis in the period between 2004 and 2007 is

particularly revealing in this regard. It says that

The IMF did not warn the countries at the centre of the crisis of the

vulnerabilities and risks that eventually brought about the

crisis..even as last as April 2007, the IMFs banner message was of

continued optimism within a prevailing benign global environment.

The IEO says that:

The IMFs ability to correctly identify these risks was hindered by a

high degree of groupthink, intellectual capture, and a general

mindset that a major financial crisis in large advanced countries was

unlikely

A lack of incentives to work across units and raise contrarian views,

a review process that did not connect the dots and an insular

culture also played a big role. (Independent Evaluation Office, IMF,

IMF Performance in the Run-up to the Financial Crisis: IMF

Surveillance in 2004-7 IMF, January 10, 2011)

For financial journalists, this failure was compounded by the

difficulties of understanding what was happening in the big picture

because of the growing specialisation of function and beat. One of

the journalists who did understand the growing risks that banks

9


10/30

were taking on was Gillian Tett, the capital markets reporter for the

Financial Times But her difficulty was in getting her views accepted

more widely across the newspaper. It is telling that Martin Wolf, the

FTs leading economic commentator has recently admitted that hedid not really see the broader consequences of her concerns until

the crisis broke.

10


11/30

The problem of over-specialisation was not unique to journalist.

Professor Rag Rajan, of the University of Chicago, another of the

small band of economists to warn of the looming crisis and top

ranked among economists in a recent Economist poll - argues thatthe increased specialisation in the economics profession as well as

the increasing detachment of its economic models from the real

world was one of the underlying causes of the failure of economics

to spot the dangers. He has recently written that:

I would argue that three factors largely explain our

collective failure [as economists]: specialization, the

difficulty of forecasting, and the disengagement of much ofthe profession from the real world.

Like medicine, economics has become highly

compartmentalized macroeconomists typically do not pay

attention to what financial economists or real-estate

economists study, and vice versa. Yet, to see the crisis

coming would have required someone who knew about each

of these areas. Blog 11 Feb 2011)

There is a third factor which is particular to journalism which also

made it more difficult to put the crisis high on the general news

agenda in its early stages. This was the lack of business or financial

expertise among the top rank of editors and front page subs who

choose the top stories of the day. Once the crisis broke in October

2008, there were willing to be guided by their financial journalists.

But before then, it was a brave front page editor who put a story

about the collapse of bond markets for certain derivatives on his

front page. This was another kind of failure of imagination, and one

that emphasised the growing split between the specialist and

generalist functions of the financial press.

11


12/30

In broad terms, the specialist press did not, for the most part, fail to

cover these events, even if their full meaning was not always

apparent. The disjunction was perhaps greatest in the case of

personal finance journalists, who were perhaps most caughtunaware by the looming breakdown of the financial system. In fact,

one of the least explored areas of the financial crisis was how

significant the endless stories about rising house prices the ease of

getting credit that was reported in the press and a huge number of

television programmes such as Relocation, Relocation contributed to

the huge build-up of household debt in the UK and US.

Now we are in a situation having socialised much of the banking

debt onto national budgets and put ourselves in a deep financial

hole where we and many other countries are again at the mercy of

a different sort of debt market those trading in sovereign debt,

which has already brought down two a weaker countries in the euro

zone and is currently threatening two more. Here perceptions are

even more important than ever, and the role of the financial press is

even more critical in maintaining or destroying the credit rating of a

country. I am not sure how well the financial press has taken on its

the responsibilities for this role either, and whether the dangers of

group think could loom just as large.

12


13/30

Four Scenarios for Financial Journalism

I believe that in order to understand more deeply the direction of

travel for financial journalism in the future we have to step back and

learn from the past.

I would like to propose that four different scenarios, or ways of

thinking, have broadly dominated our coverage of financial crises

both past and present. These are the frames which enable us to

tell our stories and make sense of the torrent of events that confront

us particularly in times of crisis.

The four frames: Tulipmania, or the Madness of Crowds;

The History of Standard Oil

Lombard Street

Reuters and the Rothschilds

The Madness of Crowds and Moral Panic

The first scenario, I would argue, has been the dominant metaphor

for financial crises since they began. In fact, I would like to take you

back to Holland in the early 1600s, when it was the cradle of early

capitalism with its rich merchant traders whose conspicuous

consumption led to the Golden Age of Dutch culture. Among the

goods its traders brought back from the Ottoman Empire were

tulips, then rare flowers that soon became a sign of affluence and

good taste. The Dutch taste for tulips, and skill at breeding them,

soon led to a proliferation of new types increasingly rare and

prized. By the summer of 1636, the price of these rare types began

to rise uncontrollably on Dutch auction markets, sparking a frenzy of

trading and speculation that threatened to unhinge Dutch society.

The price of tulips rose to ten times the annual wages of an average

worker, to the price of an Amsterdam mansion, or equivalent of the

13


14/30

cost of provisioning a ship for a year until they finally crashed in

1637.

In the words of a later commentator, Charles Mackay:

Many individuals grew suddenly rich. A golden bait hung temptingly

out before the people, and, one after the other, they rushed to the

tulip marts, like flies around a honey-pot. Every one imagined that

the passion for tulips would last for ever..Nobles, citizens, farmers,

mechanics, seamen, footmen, maidservants, even chimney sweepsand old clotheswomen, dabbled in tulips.

The lure of such get rich quick schemes, and the gullibility of the

public in falling for them, has been repeated again and again in

descriptions of financial crises and panics. It figures in accounts of

the South Sea Bubble, the first financial panic in Britain, when the

government sought to offload its public debt through a private

company in the 1720s (echoes of today?); in accounts of the

Railway Mania of the 1840s, in the speculation that led to the 1929

stock market crash, and in explanations of the dot.com bubble and

the speculations in houses and shares of the past decade, and is

often repeated both by academics and commentators when

considering the recent crisis.

An editorial in the Washington Post newspaper from August 11,

2007, just as the current crisis broke, captures some of the flavor:

BY THE HEIGHT of the 17th-century Dutch tulip mania, bulbs were

selling for the equivalent of up to $76,000 apiece, and tulip options

were trading on markets across Europe. The ensuing crash crippled

the Dutch economy for years, establishing a cautionary model of

14


15/30

speculative excess that investors have learned from, and ignored, in

a seemingly endless cycle of boom and bust. Today's tulip bulb is

the subprime mortgage: a loan to a not terribly creditworthy person

in the United States to buy a house that he or she really can't afford.

Yet the striking fact is that, after 350 years of nearly continuous use

by journalists, tulipmania turns out to be a largely a myth, invented

by pamphleteers and progandists years after the actual events.

A careful study by historian Anne Golgar of Kings College hasconcluded that nearly all written accounts of Tulipmania are wrong.

Far from spreading throughout society, the phenomenon was limited

to "a fairly small group of wealthy merchants and dealers", that it

caused no lasting economic damage, and that most accounts from

the period "are based on one or two contemporary pieces of

propaganda and a prodigious amount ofplagiarism. Mackay, who

was writing in the 1840s, was largely sourced to a 1797 work byGerman academicJohann Beckmann titledA History of Inventions,

Discoveries, and Origins. In fact, Beckmann's account, and thus

Mackay's by association, was primarily sourced to three anonymous

pamphlets published in 1637 with an anti-speculative agenda.

Now I am not suggesting that the current crisis had as few victims

as the half a dozen burghers who were all that Prof Golgar could find

who were ruined by tulipmania. . But it does suggest that the frame

of moral panic, the desire to blame evil bankers or foolish regulators

for our current problems, has deep roots in our cultural narrative of

disaster as much as it is a sober analysis of our current difficulties.

15
http://en.wikipedia.org/wiki/Propagandahttp://en.wikipedia.org/wiki/Plagiarismhttp://en.wikipedia.org/wiki/Johann_Beckmannhttp://en.wikipedia.org/wiki/Propagandahttp://en.wikipedia.org/wiki/Plagiarismhttp://en.wikipedia.org/wiki/Johann_Beckmann


16/30

What is also brings to mind is the whole issue of rationality in regard

to economic behaviour, irrational exuberance which is now being

examined by behavioural economics.

16


17/30

The Trustbusters and the Origins of Investigative Journalism

Now the second historical example I want to bring up is again

something that will be familiar with you indeed it goes to the

origins of investigative journalism. It is the role of the trust busters,

or muckrakers as they were labeled by President Teddy Roosevelt, a

group of courageous journalists who took on the trusts the big

monopoly companies in the USA which dominated both industry and

politics at the turn of the 20th century. The muckrakers investigated

many things, from the origins of the slums to police and municipal

corruption. But none was so famous, or destined to have such a

great effect, as the expose of the way Standard Oil then, and now

as Exxon Mobil the worlds largest private oil company, and in

1900 having a virtual monopoly on the production and refining of oil

in the USA. In the process it turned the founder of Standard Oil,

John D Rockefeller, from a hero into a villain.

The book The History of Standard Oil was the founding text of

investigative financial journalism. It was first serialised in the

muckraking journal McClures Magazine starting in 1902 was

aimed at giving the general reader a clear and succinct notion of

the process by which a particular industry passes from the control of

the many to the few. It was no accident that its author, Ida Tarbell,

was herself from the oil-producing town of Titusville, Pennsylvania,

and her father had been an independent oil producer before being

forced out by the business practices of Standard Oil.

Ida Tarbells methods were not those of a propagandist but rather of

a fact-gatherer. She and her researcher spent years coming the

records of hearings and court cases to gather evidence about the

methods used by Standard Oil, and using her family connections she

17


18/30

even managed to gain an interview with one of Rockefellers

lieutenants. Her even-handed and factual account of how

Rockefeller agreed secret rebates with rail companies to undercut

his competitors was hugely influential leading to an anti-trust caseagainst Standard Oil which went all the way up to the US Supreme

Court, and resulted in the company being broken up in 1911.

The attack on the role of the rich in controlling other peoples

money in the words of Louis Brandeis became an important part

of the American political tradition, and particularly associated with

the Progressive Movement which stretched from TR to FDR in the

l930s.

The Progressives argued that a group of influential financial leaders

had gained control of major manufacturing, transportation, mining,

telecommunications and financial markets of the United States. In

the context of the 1929 Crash, the widely publicised investigations

of the Pecora committee in the US Congress about the questionable

practices of bankers in the 1920s led directly to the creation of the

Securities and Exchange Commission which still regulates financial

markets in the USA, and the Glass-Steagell Act which separated

commercial and investment banking.

But investigative journalism has had a far less powerful effect on the

currents crisis. It is noticeable that the even when committees have

been set up to investigate the crisis, whether in the US or the UK,

they have not gripped the public or journalists imagination. The

hopes that major investigative journalism would have mitigated the

crisis, or provided the impetus for major reform, have proved

unfounded. Why?

First, I would note two characteristics of Ida Tarbells kind of

investigative journalism. It involved a lot of fact-digging and it was

18


19/30

retrospective, not prospective. Her objective was to ensure the law

was enforced, but she was also looking back at 25 years of history

of business practices aimed at consolidation. And where did she get

her sources? Again, she was reliant on official investigations andrecords something which todays regulators were notably lax in

carrying out in the complex world of derivatives and CDOs.

The second point I would make is access. It would be unheard of

today that an investigative journalist could get the kind of access to

details of Rockefellers life and interviews with his associates.

Indeed the result of Ida Tarbells investigation was to prompt

Rockefeller to employ one of the first public relations executives

ever hired by a US corporation, former newspaper editor Joseph

Clarke, who tried to get journalists to paint his boss as a cuddly

grandfather. Standard Oil printed and distributed 5 million copies of

a booklet disputing Tarbells findings.The pioneering public relations executive Ivy Lee was hired by the

Rockefellers to defend their image and urged them to spend more

money on philanthropy and other public projects such as Rockefeller

Centre in New York City.

But there is a more general point to make about the importance and

significance of the trust-busting journalists. They had influence

because they were part of a movement a very significant political

movement in US politics which had a clear political agenda and

direction of travel.

Financial investigative journalism of the early 1900s had clout

because it was part of a political movement with a clear narrative

and plenty of resonance with the general public. The target was

monopoly, and the constituency was the mass of small businessmen

19


20/30

and farmers who were not far removed from an earlier form of

capitalism. It was the power of that consensus which led the US

Senate to pass the SEC bill unanimously.

But today we lack the clear narrative and consensus on reform, and

I would argue that it is absence of such a frame that makes the

message of investigation and reform far more difficult. .

20


21/30

Walter Bagehot and Overend and Gurney

Now I would like to turn to the third tradition I want to discuss today.

In contrast to the highly politically charged atmosphere of early 20th

century America to the more rarified atmosphere of late Victorian

London. I will focus on the role of Walter Bagehot, the influential

editor of the Economist for 15 years.

Walter Bagehots study of Lombard Street, about the role of London

as the worlds financial capital, written in 1873, was probably themost influential book ever written by a journalist on the subject of

how to deal with a financial crisis.

Bagehot was writing during a period which had been characterized

by growing financial instability as London expanded it role as a

national and international financial centre..

Just a few years before Bagehots book came out, Londons

financial district had suffered one its worst financial panics, when

the discount house Overend Gurney & Co, collapsed, bringing down

a number of other financial houses around the UK. Overend Gurney

has extended too much credit to other firms and banks based on its

holdings of railway bonds which had collapsed in value. By the way

Norwich Gurneys survived the crash and became one of the several

Quaker families that came together to form Barclays Bank.

Bagehots response to the crisis in his book (Overend and Gurney

were based at 65 Lombard St) and to argue that the Bank of

England needed to be a lender of last resort precisely to prevent a

financial panic spreading and damaging sound firms as well.

21


22/30

Just when money is most scarce you have it.., you should lend it as

fast as you can at such moments, for it is ready lending that cures

panics, and non-lending or niggardly lending which aggravates

them.- Lombard Street, 1873.

Bagehot insights represent the style of analytic journalism that

played an important role in the financial crisis, and I believe is

central to the future of financial journalism. Such commentary has

been a strong part of the UKs financial news tradition ever since

and it is still one of its strengths, compared to the US financial

press, where the investigative tradition still reigns supreme.

But the key for Bagehot was the behind-the-scenes role of the Bank

of England which should work quietly and out of the public eye. It

was not for nothing that Bagehots other famous work, The English

Constitution, distinguished between the pretty and public bits and

the behind-the-scenes efficient bits such as Cabinet meetings.

In the next major financial crisis to hit London, the Barings crisis of

1890, when Barings had overexposed itself to Argentine bonds, the

Bank of England worked effectively behind the scenes to organise a

rescue package for Barings before the news became public.

It was no accident that when the financial crisis began in the UK

with the rescue of Northern Rock, one of the most bitter complaints

from the Bank of England that it was not able to keep this rescue

out of the press.

Part of the reason this was not possible was the change in the

nature of commentary and in particular the rise of blogging. It was

on the blog of Robert Peston, the BBC Business Editor, that the story

of Northern Rock broke and subsequently many other stories of

the financial crisis.

22


23/30

Blogs of this sort, however and the vast panoply of sometimes

skeptical blogs by a diverse groups of economists such as Brad

Stetser, Nouriel Roubini, and Glenn Hubbard from different sides of

the political spectrum are an increasingly important part of the

debate, widening the information available to interested observers

and policy makers alike

And there is no doubt that in the critical period when the shape of

the looming crisis was still unclear between August 2007 and

September 2008 when Lehman collapsed maintaining such a

dialogue was vitally important to understanding the nature of the

crisis.

However, we should note the ambiguous legacy of this tradition. It

is about talking among elites, not among the public. It is well suited

to times of paradigm change when explanations for the way the

economy works undergo a sea change. Indeed it was Peter Jay aseconomic editor of the Times in the l970s, when he was advocating

a shift from within the Labour party away from Keynesian views to a

more sophisticated version of monetarism that he famously

observed that he was only writing for 3 people and two of them

were in the Treasury.

One of our difficulties, however, in understanding and analysing the

crisis is that we are still in the process of developing alternativeeconomic paradigms. The market-based approach which replaced

Keynes as the dominant paradigm in economics in the Thatcher

years is now holed below the waterline. It may be that the insights

of behavioural economics or the insights that unequal access to

information distorts markets may prove the key to a new over-

arching theory. But developing such an overarching new

perspective which history suggests may take years if not decades

23


24/30

could be one the most important outcomes of the current crisis

and financial journalists should be at the centre of that debate.

24


25/30

Reuters and the Rothschilds: Making Money, Setting Prices

My final story returns us to the more mundane function of financial

journalists and their effects on markets. From the beginning

financial journalism has been more about reporting prices than

anything else. Indeed both the newspaper and the stock market

have a common origin in the 17th century coffee house, where

information was exchanged for profit on a semi-exclusive basis.

The key role technological revolution in financial journalism begannot in the 1980s with the invention of the World Wide Web, but in

the l840s with the invention of the telegraph. And it was the spread

of instantaneous proprietary information that was to have the most

revolutionary effects on markets. It also created what was for a long

time a secure monopoly on the private reporting of information.

And one of the keys is the role the Rothschild Bank played in the

origins of Reuters, the financial wire service that is still one of the

dominant players in data collection and dissemination today.

Reuters started by providing news to the Rothschild Bank on an

exclusive basis, and the bank had indeed built up the most

extensive network of agents in all the capitals of Europe to get what

we would now call insider information about what was going on,

particularly in government lending.

In 1855, a decade after the invention of the telegraph, Julius Reuters

came to the Rothschilds with a proposition, for them to back an

electronic telegraph price reporting system between London and

Paris.

25


26/30

To his surprise, Rothschild turned him down flat. I do not wish to

see such a system established. It will ruin our business, he

asserted. Undaunted, Reuters went ahead and established his

service. The key breakthrough in telegraph transmission, however,was the laying of inter-ocean cables, starting the Atlantic cable in

1866, and eventually reached the furthest reaches of the British

Empire Australia by the 1880s. The cables were all routed

through London and Reuters and the British government

controlled the worldwide distribution of information (a point

reinforced in World War I when the British Navy disconnected the

German cables to North America). The world was divided into

different territories for the purpose of transmitting financial

information they were too expensive for ordinary telegrams with

Havas taking part of continental Europe and Western Union and

later AP the US a system which lasted for nearly 100 years.

And what of Rothschild? Well, according to Niall Fergusons

magnificent biography, the creation of Reuters was indeed a turning

point in the banks fortunes, beginning the long term decline from

the most pre-eminent European bank in Napoleonic times to a minor

player today.

There are two legacies I take from this tale. The first is that the

most revolutionary effect of financial journalism has been its effect

on markets through price disclosure. The current structure of

financial markets, and the revolutionary changes in production and

consumption worldwide, owe as much to the reporting of financial

prices as to the steam engine or the motor car.

The second point I would make is that in many ways the future of

financial journalism as a well funded activity depends on its ability

26


27/30

to provide proprietary, real-time information. And so far financial

journalism has been remarkably successful in preserving this as

the expansion of Reuters and now Bloomberg has shown. Whether

this continues, and what effect it will have on the character ofreporting, is one of the most important questions for the future of

financial journalism.

The Future of Financial Journalism The Western Version

Now I would like to summarize where we are and where we are

going. But I would like to caution that this is really the Anglo-Saxon

version of events, heavily influenced by what happens in the US and

the UK which are still the centres of financial journalism in the

West, due to their greater reliance on markets and their stronger

laws on disclosure. There are very different trends at work in the

rest of the world, particularly in the emerging markets of Asia and

the Middle East.

There are three trends I see dominating the next decades of

financial journalism.

The first is the increasingly convergence between political

journalism and financial journalism. The next decade is likely to bedominated both the US and the UK over what to do about the deficit

and what its effect will be on politics, society and the economy. This

requires the kind of journalism that can move seamlessly from the

boardroom to the committee room and understand the political

economy of the crisis. It is even clearer in the case of the Euro zone

crisis that there are political as well as economic interests at stake.

27


28/30

The second trend is the continuing split between the specialist and

generalist functions of financial journalism, after a temporary but

brief coming together during the financial crisis. In particular, the

economic viability of specialist financial journalism looks morepromising than that of the generalists, where much economic news

has become commoditised.

The third trend, which I think may be inevitable if not desirable, is

the growing importance of commentary and analysis and the

relative decline of investigative journalism, as resources shrink and

the regulatory climate gets more difficult. And although the internet

has also proved an important place to find and release data, it is

also the place in which commentary will especially reside. The

growing complexity of the financial world in which we leave, and the

need to make sense of it, as well as the desire of paid-for journalism

to differentiate itself, will ensure that this will continue.

And finally financial viability. I do not share the pessimism about the

future of the press in the age of the internet applying to financial

journalism in the same way. The need for real time financial data

which can still be organised in a proprietary way will provide

financial journalists with at least some of the resources they need to

survive.

The Future of Financial Journalism the Global Version

But perhaps the most important clues to the future of financial

journalism lie not in London or New York but in the booming mega-

28


29/30

cities of Shanghai, Mumbai, Nairobi or Sao Paolo. Here there is no

question of the survival of the financial press rather what we are

seeing, particularly in the emerging market economies in Asia, is a

huge boom, with the growth of financial news channels, financialmagazines and newspaper supplements. And the new channels of

communication, the internet and mobile phones, are also increasing

sources of news.

However, with such a rapid expansion has also come uneven

development. The biggest challenge for the business media in

developing countries is to detach itself from its dependence on the

state and corporations for its stories and funding.

This is not just a matter of red envelopes where sometimes

reporters are given gifts in return for writing stories. It is also the

ability to develop editorial independence in a situation where

corporations and governments (and in the case of China, the partyand the army) are deeply inter-twined.

The creation of an independent class of journalists working to

professional ethics is a vital part of this process, as is the

improvement of journalism training and recruitment. As long as

journalism is seen as a route to a PR job, rather than the other way

round, our journey is not complete.

But financial journalists also have a tremendous opportunity in the

emerging market countries, not just to expose corruption, but also

to report and understand the tremendous economic transformation

that is taking place in these countries at breakneck speed.

Understanding the consequences and pathways of this drive to

29


30/30

modernization and how it will play throughout the global economy

is the biggest challenge facing journalists today.

And I have no doubt that they will rise to that challenge of providing

the essential guide and companion as our economic and financial

world is remade once again.

Thank you for listening.

Documents

The Future of Financial Journalism in the Age of Austerity