—Chrystia Freeland ruminates on business journalism’s image problem in the Times Book Review, and argues against the good-guys-vs.-bad-guys construction of the credit crisis that some commenters, including us and, apparently, Stieg Larsson’s character Mikael Blomkvist, have been accused of falling into.
The argument says that it’s bigger than all that—that it’s systemic forces that shot John.
The overarching story is one of systemic failure, not individual wrongdoing. It wasn’t the Bernie Madoffs who plunged the world into recession. It was low capital requirements, weak limits on leverage, over-the-counter traded derivatives, soft rules on mortgage lending and global financial imbalances.
If your attention wandered as you read that list of abstract terms, you are not alone.
A growing body of cognitive research is demonstrating something schoolteachers and entertainers have known for a long time: Most of us respond better to personal stories than to impersonal numbers and ideas. That cognitive bias is so pronounced that Deborah Small, a professor of marketing at the Wharton School, has found that charitable giving actually goes down if too many statistics are included in individual tales of need (and if we get only statistics and don’t learn any personal stories, giving is even lower). Forget “just the facts, ma’am.” Actually, forget the facts altogether.
For readers, that same bias means we are drawn to stories about people, not systems. When it comes to the financial crisis, we want heroes and villains and what-he-had-for-breakfast narratives; we are less enthralled by analytical accounts of the global financial system and the cycle of boom and bust. The Columbia Journalism Review—and Blomkvist—juxtapose the approaches of “access” and “investigative” journalists. But the real divide may be between storytellers and system analysts.
Couple things: As I’ve said before, a running-amok financial industry and system failure aren’t mutually exclusive; indeed one could have triggered the other, and vice verse. To quoteth myself (well, she does call us “high priests of American journalism,” though we think of ourselves as simple news monks):
Just because crises are complicated doesn’t mean individual and institutions didn’t play important roles, and complexity does not give the financial press a pass from its job of calling those actors to account on readers’ behalf. Just the opposite is the case: institutions are decisive, and investigating them is Job One.
And, even if wrongdoing, defined as you wish, played no role at all, and it was all about “low capital requirements, weak limits on leverage, over-the-counter traded derivatives, soft rules on mortgage lending and global financial imbalances,” it strikes me as dicey to talk about those things as though they were the weather, divorced entirely from human agency.
Also, the piece appears to veer toward saying readers be too stoopid to get the system story. If so, I beg to differ. I think they get it just fine.
—Bloomberg BusinessWeek takes a good look at a bad deal Chicago did with a Morgan Stanley-led partnership to lease the rights to collect parking meter fees. Of course, the price the city got is now found to have been low—unlike parking rates in the Loop:
Morgan Stanley’s partnership has raised parking rates twice since the lease began. Fees at some central business district meters rose to $4.25 an hour from $3 since January 2009 and are scheduled to increase to $6.25 in 2013.
And that’s for a parking meter. Here’s what the city’s not-excellent adviser, William Blair & Co., told an inspector general investigating the deal.
Blair said the agreement shields Chicago from economic uncertainties, such as reduced parking revenue if drivers switch to mass transit.
But, you know, the deal only lasts for 75 years, which, for us Cub fans, isn’t that long.
BizyWeek calls the deal a “cautionary tale.” Just so.
—Louise Story had nicely balanced, maybe too balanced, look over the weekend at a study that asks whether there is a “possible connection” between income inequality and the financial crisis.
While people in the piece argue back-and-forth about the difference between correlation and causation—just because two things happened doesn’t mean one caused the other—it’s hard to argue that there’s no connection whatever:
For his part, Mr. Moss said that income inequality might have complicated links to financial crises. For instance, inequality, by putting too much power in the hands of Wall Street titans, enables them to promote policies that benefit them — like deregulation — that could put the system in jeopardy.
That seems not unreasonable. And:
Inequality may also push people at the bottom of the ladder toward choices that put the financial system at risk, he said. And low-income homeowners could have better afforded their mortgages if not for the earnings gap.
Columbia’s own Glenn Hubbard gets his licks in:
(Mr. Hubbard has a different take: He says many lower-income homeowners should not have had mortgages in the first place. The latest crisis, he says, was caused by policymakers who decided to “democratize credit” by expanding home ownership….)
Okay, that, too.
—The Journal’s Ruth Simon does well to notice that credit card rates are rising while other rates are falling.
“The rules have changed and the goalposts of risk have changed,” says Paul Galant, chief executive of Citigroup Inc.’s Citi Cards unit.
—Finally, the paper also had a useful take on the $2 trillion cash hoard that public companies are sitting on. If it returns to normalized levels, that would mean more than $400 billion in corporate spending. Here’s hoping.