One of the more unfortunate results of the Financialist bent in our economy is the corruption of business and economic news. On national broadcasts “the economy” is often reduced to a few moments during which the Talent will inform us of unemployment figures (maybe) or some other statistics (perhaps) before dutifully reciting the latest numbers from the New York stock markets.
All too often the script goes something like this: “The Department of Labor released its unemployment report for (fill in the date) showing a moderate uptick in private sector employment for the month of (fill in the date). The Stock Market, which opened slightly down this morning reported gains in the early afternoon after the report was released.” And, then come the numbers.
The first question for most viewers probably ought to be: So What?
The stock markets are filled with traders. Traders trade. That’s what they do for a living. They would trade if the employment numbers went up — with maybe more “buys.” They would trade if the employment numbers went down — with maybe a few more “sells.” However, shifting from the employment numbers to the stock market numbers gives the appearance that the two are inextricably and causally connected. They may not be.
For example, we could have the best employment improvement in the past year, but if the Eurozone starts to implode I’d be as willing as a bond trader to bet that the “the markets” will go down. The one thing the stock market report does tell us is that human beings are essentially herd animals and it doesn’t take too much to stampede the cavvy. Anything and everything can be interpreted as a rationale for trading.
Lately, the most extended “economic” informational stories have been related to the housing market and recessionary pressures on middle class Americans — “The impact of layoffs”… “The Sad Tales of Foreclosure”… with little context supplied to the subjects. We ought to be able to ask more informed questions. How many of the present foreclosures were precipitated by homeowners who refinanced homes in which they had some equity? How many of the foreclosures are related to families with profound medical expenses? How many of the foreclosures are the result of homeowners who were sold NINA loans by subprime lenders like Ameriquest? How many are the result of fraudulent appraisals conducted by unscrupulous brokers? How many homeowners were unable to refinance because of a deterioration in home values, when the original values were inflated?
Without contextual information the simplistic charges and counter-charges made by Wall Street apologists on one hand and those who defend the “flippers” on the other — “It’s All Goldman Sachs,” “It’s All Fannie and Freddie,” or “It’s All Irresponsible Homebuyers” — are allowed much more credence than they deserve.
The context is available. There are several excellent publications which address the collapse of the housing bubble — but most viewers are on their own to locate these references. There are reports available from the Department of the Treasury, the Office of the Comptroller of the Currency, the Department of Housing and Urban Development. However, you have to find them yourself. Spending time searching The Web for information means you’ll probably have to miss broadcast news about the latest natural disaster, shark or bear attack, house fire, and political trivia.
The situation on the so-called “business channels” is even worse. Nearly every segment relates to “what does this mean for the Market?” “This” being nearly any imaginable topic. If the “analysts” aren’t analyzing, then we can bet that someone will be interviewing the manager of Flight By Night Securities about his (rarely hers) predictions for the “investment picture” for the foreseeable future. That the prognosticators fell flat on their faces in late 2008 is “old news.”
The truly sad part of the housing bubble collapse story is that the information WAS out there. Contrary to some popular versions of the narrative, more than just a handful of investors and fund managers were cognizant of increasing default levels, increasing numbers of subprime loans being sold even to people who could have qualified for conforming mortgages, and the decreasing underwriting standards that polluted the whole system. So, why does it seem like so many people were so surprised when the bottom dropped out in 2008?
The best answer may well be that they weren’t, but that doesn’t mean that the casual viewer of nightly news casts and cable business broadcasts had the information. The cable business channels cater to the Street. That would be Wall Street not Main Street. Heaven forfend they should broadcast nay-sayers who might cause the Herd to Stampede for the exits.
Therefore, what the cable business channels will impart is primarily Financial news, which fits right in with our current financialist tendencies. “Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments.” [SeekingAlpha]
We knew that manufacturing had taken a hit in this country, but this wasn’t a topic worthy of much consideration on the financial channels. Therefore, the information was broadcast piece-meal, if at all. Off-shoring, and out-sourcing were “old news,” and the attention deficit disordered media moved on. Unfortunately, the layoffs had an impact on local economies and local housing developments. There was a total picture, but we were getting jig saw puzzle pieces of it straight out of the box.
We knew that we were getting besieged with offers of home equity loans, low down payment auto loans, and applications for every credit card sponsored by every entity under the sun. What we didn’t know was that these were being manipulated into asset based securities — that the asset based securities were being manipulated into CDOs — that the CDOs were being manipulated into synthetics — that people were out there buying Credit Default Swaps on the whole mess. The primary economic activity moved ever closer to the “creation and manipulation of financial instruments.”
Outside of some egregious examples of corporate rapacity, most of these activities were conducted in broad daylight. Brooksley Born had already sounded an alarm on the lack of CFTC derivatives oversight. Sheila Bair had been warning about the subprime mortgage market since 2002. The Office of the Comptroller of the Currency had a working paper, “Specification and Informational Issues in Credit Scoring,” published in December 2004. There was a red flag in the OCC report surveying credit standards in September 2004, “ At the product level, only three of eight retail products were reported to have a net increase in credit risk in the past 12 months – credit cards and the two home equity products. Examiners cited a decline in the quality of credit card portfolios and concern about external conditions for credit cards and the two home equity loan products as the reasons for the increased risk.”
And, the band played on… as if the strains of “Nearer My God to Thee” could still be heard coming from the deck of the Titanic. Enron, World Com, and Tyco sank — and the happiness people on our television sets kept ‘informing’ us the economy was doing well. Most people were unaware of the ramifications of the Alternative Mortgage Transaction Parity Act. The television talent continued to interview CEOs and fund managers. That J.P. Morgan had been allowed to get relief from capital requirements by using credit derivatives since 1996 wasn’t common knowledge. Bankruptcies, like that of The Money Store in 2000, should have caused the red flags to fly — they were still at half mast.
The capacity of the American public to take on more debt was questioned when regulators and analysts noticed that the mortgage industry shifted from primary loans into refinancing. The American public was less informed of this shift than of the “housing start numbers,” and the effect those had on major construction company stocks.
With the advent of Occupy Wall Street the broadcast media “discovered” income inequality trends. Actually, the San Francisco Federal Reserve published a paper in 2007 saying: “Over the past four decades, overall income inequality has increased in the U.S. One particularly striking feature of the data is that the income gap has widened most between the top and the middle of the distribution, while it has remained relatively stable between the middle and the bottom.” The paper drew on sources going back as far as 1994. The broadcast media briefly glimpsed at the global GINI coefficient, meanwhile U.S. residents were living in it, and in the increasing gap between the top 1% and the remaining 99%.
Thus what we now have is a broadcast media which is calibrated to report financial news, all too often without contextual or historical references, and with an emphasis on the reactions of markets — not the reactions of those who are major participants in our overall economic life.
The media evidently consider it sufficient if a representative of the NFIB is speaking of small business, without asking if the association’s position actually represents the interests of businesses employing fewer than 50 people? Or, that it seems sufficient to have a ‘panel’ consisting of fund managers discussing the turn-around in the automobile industry? Or, to find no reason to discuss the fact that on the day Kenneth Lewis, CEO of Bank of America told his shareholders All Was Well, his bank owed the Federal Reserve some $86 billion dollars. [Bloomberg]
This really isn’t enough for an informed citizenry. However, until the day the business channels and nightly recitation of stock market numbers are transformed into realistic economic reporting, we may have to make do for ourselves using print media, blogs, agency reports, and then put the pieces of the puzzle together for ourselves.