Lehman’s collapse and the future of financial news
I was on a panel of bloggers at a conference at the Columbia School of International and Public Affairs, “Facing the Fracture: Media & Economic Understanding.” The event, organized by Anya Schiffrin and sponsored by the Roosevelt Institute, brought some pretty smart journalists together to talk about the future of financial journalism in the face of the real challenges presented by the credit crisis.
For my part, it was interesting to be there simply because the last time I was in that very room was in the mid 1990’s, I was a Columbia University Business School student stuffing my face on free hors d’oeurves and massive amounts of alcohol at one of those corporate recruiting events. The number of students at these events is always bloated by freeloaders like myself who have no intention of interviewing at a given firm and are just there for the free food and booze.
The speaker back then? Dick Fuld and Lehman Brothers. Fuld was wooing us all with stories of how Columbia was his number one recruiting ground for MBA talent. He said, "Lehman hires 20 people a year from Columbia and I come here personally every year as a testament to our commitment to this school" or something to that effect. I don’t remember exactly because it was almost 15 years ago and I was more interested in the cocktail bar. But, it did have a lasting impression on me. I did not get the impression that Fuld was bulls%itting us. Of all the big shots, CEOs, and recruiters I met during business school, Dick Fuld stood out as the one who was most sincere in his commitment to bringing in the next batch of talent.
That was then. Fast forward to yesterday and there I was in the same room again, only this time I was doing the talking and I was saying things like:
I find it hard to believe, given the accounting rules we have in place, that a firm could simply melt down with a $150 billion hole in its balance sheet without fraud being a significant factor.
I almost started working for Lehman Brothers in London back in 2000. I liked the people. They seemed like an up-and-coming place on the London scene, especially in the leveraged finance arena in which I worked. As I recall it, doing deals and getting a lot of experience under my belt (and making money) were my priorities at the time. If I had to evaluate my framing of the sector at the time, I would say I had a blinkered narrow view that only consisted of my role within the narrow sphere I was operating in. I really wasn’t thinking a wit about systemic risk and the financialization of economies in Britain, Ireland or the US or the role my specific duties had in this.
I also imagine my friends who lost their jobs when Bear Stearns and Lehman Brothers were wiped out had pretty much the same narrow view at the time their firms collapsed. So what am I driving at here? When I started this post, I actually intended to write something completely different about the future of financial news (my lead-in paragraph tells you that). So I left the title.
But, what I have ended up saying, in essence, is that most people I know in the financial services sector are simply working as hard as they can to gain as much experience as they can and garner as many connections as they can in order to be invaluable employees so they can grab the brass ring of wealth which seduced them into the financial services arena to begin with. And I might add, for mathematically-oriented people like me who are outgoing and interested in the way the world works, financial services is a natural fit. It’s not all about the money, you know. More to the point: it’s not like they are all banksters looking to defraud the government of Riga or rip the face off Jefferson County, Alabama.
But, with an increasing amount of productive resources, money and talent going into financial services, the riches can be quite seductive. This necessarily means that fraudsters and scammers (people who should be prosecuted, by the way) will proliferate as regulatory oversight is withdrawn.
So, when I approach these issues of fraud, criminal prosecution and regulatory reform, I see the collapse of a firm like Lehman Brothers as the inevitable result of lax regulatory environment in which government was simply captured by industry. But, of course, the financial press was captured too. I wrote on Monday:
traditional journalism seeks to recount events in a relatively neutral voice. It is up to readers to interpret the information. This model is problematic in times of economic and political turmoil because people are looking to make sense of what is going on around them. In my view, the recounting objective is one of the key elements which caused American journalism to lose credibility in the run-up to the War in Iraq and during that war’s first years.
But more than that, in today’s world, recounting depends on access. And it is this nexus of the desire to recount via access journalism which has weakened the objectivity of journalism. How can you recount a story objectively, when your narrative depends critically on interested parties? You can’t. So your account starts to take on a propaganda-like feel. Readers come to distrust the account and to look elsewhere for more transparent analysis if not objectivity.
What needs to happen going forward is a renewal of institutions, starting with the business press. The financial press needs to take a good look in the mirror and ask itself whether their objectivity is being compromised by access journalism and whether this decreases their impact and therefore diminishes their future revenue stream. I see systemic failures in the reporting of the business press for the same reasons we saw failures with the likes of Bob Woodward or Judith Miller during the Bush Administration’s prosecution of war. It’s called cognitive capture, something we used to call ‘going native’ when I was a diplomat in the early 1990s.
Those are my initial thoughts coming away from the conference. I’ll have more later today.