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Looking from the herd - Do we love the wrong stories?

Looking from the herd - Do we love the wrong stories?

Dit artikel door Drs. Henri Geerts en Dr. Annemarie Hinten-Nooijen is gepubliceerd in Asset Magazine.

Looking from the herd - Do we love the wrong stories?

geplaatst: 10-01-10

As a reaction to all the attention given to the economic crisis, one question for me is still not solved. Why did the press and business schools not warn us for an economic collapse? Didn't they know? Or is the public not eager enough to be well informed and are we therefore deprived of a market for adequate news? And what lessons can we draw with the readers of Asset Magazine, most of them students in Business Administration at Tilburg University?
A few days before New Years' Eve, at a Christmas ball, I met a Japanese woman who works for a huge bank in London. In between some dances we had a conversation about the London public transport system in comparison to the subways in Tokyo (she tended to consider the one in London quite inferior). And she gave me a few insights in her work. She wrote a lot of documents before the financial crises started, about risks - too large risks. Risks involved in mortgage securitizations. Nobody in the higher ranks of the bank read her work and the conclusions involved, very carefully - so she told me.
It is always nice to talk to a person who speaks with a dissonant voice about the vulnerabilities of the system we are in. Especially afterwards, when a crisis did become obvious...
But before - that is different. And with good reasons as Gretchen Morgenson, a Pulitzer Prize-winning business columnist for The New York Times explains: "So, as long as the stock market is going up, people don't really pay attention to a lot of other things. The fact is many, many banks took on far too much risk in the interests of trying to juice their profits" she writes. "Often one of the results of juiced profits is higher pay".
And her own newspaper did not do that bad. In the five years before the downfall of two Bear Stearns hedge funds that held a lot of mortgage-backed securities in June 2007 the NYT published more than 100 articles including some version of the terms "collateralized debt obligation" or "securitization". Some of these hinted at possible difficult times to come. But none of these landed on the front-page.
And there were a lot of articles on the front page telling stories of the big financial firms: Bear Stearns, Citigroup, Goldman Sachs and all the others. Without mentioning the grave risks these firms were taking.
Things happened to look completely different in January 2009. But even then, when there was a feeling of a serious crisis, most of the business editors in America would have stepped back if their reporters turned in copy that mentioned the word 'depression'. At the beginning of 2010 we are all definitely optimistic again; so why mock just a year later, about those editors who were afraid to let their reporters call the crisis, though "unprecedented", a depression?
From the start onwards, one of the more well-known commentators on the crisis was professor Krugman. A recent Nobel Prize Winner who openly stated: "This looks an awful lot like the beginning of a second Great Depression." He was deeply convinced about the urgency of the situation. His character and moral values were quite obvious. And he considers himself a liberal intellectual. Which makes him deeply convinced of one fundamental truth: "So, all around, honesty is the best policy", he stated, "and if the truth is scary, so be it."
It is important for people to remember that Krugman fulfills a far different role than the business reporter at a small paper. He is a commentator, one of the few in the mainstream media, who has spent years delving deep into macroeconomic theory. His recent Nobel Prize in economics confirms his stature. And even if the public would not listen to him, the new Obama administration does.
The quest for truth is the core business of journalism and science. And some of it might have political and economical influence.
What I would like to stress in this small essay is that news and papers are not only about data and facts. We try to put data and facts together in a coherent and consistent meaningful entity: a story. Our culture is made of the stories we tell and these stories fit in a culture. To be more aware about knowing what is fundamental to an economic crisis, we need a cultural view on human behaviour - and misbehaviour.
And to get a good grip on that we have to tell stories like historians. Trace back the trail from a certain point. For example, the implosion of one of our biggest banks, or the end of some criminal careers in the brick and-concrete-world of real estate. In the field of economics the two best works of investigative journalism in the Netherlands are retrospective. These two stories are "De Prooi" i.e. the Prey written by Jeroen Smit and "De Vastgoedfraude" (real property fraud) by Vasco van der Boon and Gerben van der Marel.
These are two wonderful books, about greed, about going for the top - and ending up in jail. Maybe it is not possible to look into the future - but it is certainly important to be aware of the culture that carries our future. Read the papers, read the books.
Drs. Henri Geerts en Dr. Annemarie Hinten-Nooijen, Academic Forum