You are on page 1of 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 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,

1
and our industry collaborators the Financial Times and the BBC for
their support for this programme.

2
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.

3
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

4
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 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

5
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
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.

7
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 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.

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
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 also
dissenters 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 IMF’s 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 IMF’s banner message was of
continued optimism within a prevailing benign global environment.”

The IEO says that:

“The IMF’s 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
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
FT’s leading economic commentator has recently admitted that he
did not really see the broader consequences of her concerns until
the crisis broke.

10
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 that
the 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 of
the 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
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 caught
unaware 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
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
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 sweeps
and 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
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 has


concluded 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 of plagiarism. Mackay, who
was writing in the 1840s, was largely sourced to a 1797 work by
German academic Johann Beckmann titled A 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
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
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 world’s 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 McClure’s 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 Tarbell’s 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
even managed to gain an interview with one of Rockefeller’s
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 case
against 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 people’s


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 journalist’s 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 Tarbell’s kind of


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

18
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 and
records – something which today’s 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 Rockefeller’s life and interviews with his associates.

Indeed the result of Ida Tarbell’s 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 Tarbell’s 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
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
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 Bagehot’s study of Lombard Street, about the role of London


as the world’s financial capital, written in 1873, was probably the
most 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 Bagehot’s book came out, London’s


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.

Bagehot’s 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
“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 UK’s 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 Bagehot’s 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
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 as
economic 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 alternative
economic 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
– could be one the most important outcomes of the current crisis –
and financial journalists should be at the centre of that debate.

24
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 began


not 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
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 Ferguson’s


magnificent biography, the creation of Reuters was indeed a turning
point in the bank’s 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
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 of
reporting, 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 be
dominated 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
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 more
promising 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
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, financial
magazines 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 party
and 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
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.

30