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A tone of escalating panic marks the coverage of the financial crisis. After Lehman Brothers collapsed in September 2008, headlines like 'Nightmare on Wall Street', 'Titanic has hit iceberg' and 'The only thing we have to fear is not feeling fearful enough' were common. Phrases like 'financial apocalypse', 'economic armageddon', 'financial tsunami' and 'naked terror' litter reports. Little wonder. The financial system was in fully-fledged meltdown. Worldwide credit had seized up as financial institutions refused to lend to each other for fear of the toxic assets they had on their books. By the end of 2008, global stock markets had plunged nearly 50 per cent, wiping out around $35 trillion in financial assets. All five of Wall Street's investment banks – and many more around the world – had vanished (McNally 2011: 13). For the first time in 70 years, the world was witnessing a fully-blown crisis of capitalism. Governments came to the rescue with hundreds of billions of dollars in bailouts, while central banks pumped in liquidity and cut interest rates to near zero.
Given the sheer scale of the meltdown, journalists and their editors must have been flabbergasted. Probably for that reason, this first phase of the crisis saw the most open media framing. Rage against the 'masters of the universe' appeared alongside attempts to explain the systemic problems with finance. Some coverage even grasped the roots of the crisis in the neoliberal or 'free market' capitalism of the previous three decades. Demands for bankers to be held to account joined widespread calls for financial reform. Full public ownership of the banks was even approved of in some quarters of the press. The global nature of the crisis and its effects was conveyed.
Unfortunately, these explanations and demands were quickly forgotten. Even at this early stage, several of the problems with the coverage that later become all-too-apparent were identifiable. Explanations were too often shallow, confusing or absent altogether. Measures taken by the establishment were too often accepted without proper scrutiny. And the range of debate, though broader than in later stages of the crisis, nevertheless excluded discussion of some of the most fundamental questions about our global economy – questions that a crisis should arguably bring out into the open. In some ways, then, the coverage of this first phase of the crisis is the starting point from which media amnesia is explored in the remainder of the book – it was the coverage from this period that was later forgotten and rewritten in subsequent months and years. However, as will be seen, the elements of media amnesia were already discernible in 2008.
The most common explanation for the crash was the bad behaviour of those working in the financial sector, or the 'greedy bankers' frame (Thompson 2009; Schifferes and Knowles 2015). In coverage focusing on the financial crisis, this accounted for 29.3 per cent of explanations given. Headlines blazed, 'Arrogance and greed of bankers lie at the heart of financial meltdown' and 'so many suffer for the grimy greed of a few'. The Mirror referred to 'greedy, immoral bankers' and 'grasping bankers' who had 'infected the system with financial foot-and-mouth' to fund their 'obscene lifestyles' (Maguire 2008b).
The sense of outrage expressed here is perfectly understandable, and there is a good argument that journalists should give voice to public anger directed towards those implicated in causing hardship to millions. In 2007, Goldman Sachs paid its leading employees $20–$25 million each in bonuses, with some traders getting as much as $50 million. Real-life pantomime villains like RBS's Fred 'the Shred' Goodwin made for good headlines. We might wonder where this anger has gone, after years of austerity. Those claiming that there is no 'magic money tree' to fund public services might do well to remember the bankers and their bonuses.
The problem with this approach, though, is that the tales of greed, arrogance and stupidity tend to distract from the more systemic problems with the financial sector. As Steve Schifferes and Sophie Knowles (2015: 48) write: 'the moralizing of the crisis in the press allowed popular anger to focus on individuals, rather than on the financial system as a whole, or on the politicians and regulators who had created the structures that had permitted abuse of the financial system'. While there is certainly a place for anger, then, a more systemic understanding of the crisis is necessary.
SUBPRIME AND SECURITIES
The majority of media items failed to provide these systemic explanations. Nevertheless, they were the second most frequent category of explanation for the crash, representing 24.4 per cent of the causes mentioned. Some journalists made a valiant effort to explain to their audiences in plain English what was going on, no easy task in the small space available in the conventional news format. In the Telegraph, Edmund Conway explained the issue in some detail during the Bear Stearns collapse in March 2008. It is worth quoting at length:
Quite simply, we have borrowed too much over the past decade or so. Individuals and businesses alike are guilty. When banks ran out of money to lend to their customers, rather than closing the floodgates they came up with an ingenious solution. They found they could continue to lend mortgages and loans if they sliced up the debt and sold it on to other canny investors. They did so, and it was this 'securitisation' that helped drive house prices ever higher both here and in America ...
The only problem was that those investors weren't as canny as they thought. They paid massive prices for these bundles of debt, despite the high probability that a certain proportion of the debtors would default. When house prices in America started to fall, inevitably, after so many years of break-neck inflation, all too many investors found themselves landed with these toxic packages, no longer worth much more than the paper they were written on ...
Unsurprisingly, as a result of all this chaos, banks have pretty much given up on securitisation and this is where our rather vulnerable economy comes in ... until recently mortgage companies were relying on this funny money for almost a third of their lending ...
The fact that none of the banks has any idea how badly their competitors have fared has only served to intensify the crisis. The interbank lending markets – the oil that lubricates the financial system – have been all but frozen for months (Conway 2008).
This article lays out concisely the problems with banks overborrowing and overlending, securitisation and the subsequent collapse of confidence and liquidity. Other journalists also detailed the failures of the regulators – the Financial Services Authority (FSA) in the UK to spot the problems. Regulatory failure was the fifth most frequently mentioned cause of the crash.
Unfortunately, Conway begins his article by blaming ordinary consumers for borrowing too much. In one respect, blaming consumers makes sense. After all, this debt would not have existed had consumers not borrowed the money. However, this ignores the fact that real wages had been falling or stagnating. Both in the US and in the UK, individuals were regularly borrowing not for luxury goods but to spend on services like education or healthcare, or just to makes ends meet (BBC Radio 4 2011).
Nevertheless, the rest of Conway's account is reasonably comprehensive, accurate and clear. Elsewhere, the coverage made no attempt to explain the systemic problems in finance. When explanations were offered, they were often given in a fleeting and off-hand way, which would not have shed much light on the situation for the average reader or viewer. With others, the most striking thing about them is how incomprehensible they are:
It is not just that Lehman had $110bn of senior bonds that are now virtually valueless; it had written an estimated additional $440bn credit default swaps on top, which it cannot honour ... Nobody knows where these losses will end up. It has suddenly become obvious that the Paulson plan cannot simultaneously handle this together with the fallout of the sub-prime crisis. And in addition there is the impossible challenge of financing trillions of dollars of asset-backed securities which are maturing when the world's interbank markets are shut (Hutton 2008).
Bear in mind that these items are not from the specialist finance sections but the main news and comments pages. Moreover, this article was published during the height of the collapse in October 2008, so terminology to which we may now have become more accustomed would have still been relatively new. The jargon of 'credit markets', 'liquidity', 'subprime', 'asset-backed securities' and 'credit default swaps' would probably not have enlightened the average reader as to what was going on. Only those already familiar with the system would understand the language, and it is likely that these people already knew what was happening – in fact only the kinds of people giving the journalists the information would understand these explanations.
Why was it so difficult for journalists to explain the systemic problems with finance in a way that made sense? One reason is that most of them didn't understand what was going on, and so were reliant on sources within the finance sector. Much of the generalist coverage was not produced by financial journalists but by those working in politics sections or the news desk, who would have had even less knowledge of the subject. One former BBC correspondent stressed to me that the compartmentalisation of news production into different sections, operating in silos, and the prioritising of some sections over others (i.e. politics over economics), led to a lack of clear and thorough explanation.
But there may be another reason: the system does not make sense. Henry Ford once remarked about the US that 'it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning' (in Byttebier 2017: 14).
Over the decades, those working in the financial sector had erected a scaffolding of incomprehensible jargon with which, in the words of journalist Max Hastings, they told people that 'only they knew how to manage capitalism'. Behind that scaffolding, they were engaging in some truly nonsensical behaviour. Heterodox Cambridge University economist Ha-Joon Chang explains just how surreal 'financial innovation' had become. Mortgage-backed securities (MBSs) were created by bundling together up to several thousand mortgages. Then, some of these MBSs, up to 150 of them, were bundled into collateralised debt obligations (CDOs). Then, CDOs squared were created by using other CDOs as collateral. Then, CDOs cubed were created by combining CDOs with CDOs squared. Ever higher-powered CDOs were created (Chang 2011: 238). Credit default swaps (CDSs) were created to protect against default on CDOs. Only you didn't have to be exposed to the risk in order to buy one.
These antics were carrying on within institutions that were 'too big to fail' and threatened to bring down the entire system if they collapsed – something they knew very well. The regulations governing financial institutions were designed according to their wishes. Many of the transactions were taking place in the shadow banking sector, which evades even this regulatory regime. According to journalist Joris Luyendijk (2016), who interviewed 200 people working in finance, the system was riddled with 'conflicts of interest' and 'perverse incentives'. In particular, the shareholder-value model of banking prioritises return on equity over all else. It encourages excessive leverage and risk-taking. While the rewards have been harvested by shareholders and managers, the risks have been borne by society (Haldane 2011: 2).
Economist and former Greek Finance Minister Yanis Varoufakis (2015: 132) argues that complex financial instruments came to function as a kind of 'private money', which flooded the world economy. In 2007, for every $1 of world income, $12 worth of derivatives circulated. In the words of Varoufakis: 'the world of finance had evidently grown too large to be contained on planet earth!' (130). Finance had seemingly lost any connection to reality. However, as Tony Norfield (2016: 84) explains, that connection hadn't been broken, it had just been 'stretched'. All the private money that the banks had created was based on debt. The ability of the debtors to repay the debt with interest was dependent on the creation of value in the 'real' economy – their wages. When they started defaulting on their loans, the system came tumbling down.
To understand the crisis, journalists did not just have to get to grips with the impenetrable financial system but with how that system had become so dominant, and its relationship to the wider economy. Curiously, in the 412 media items with a primary focus on the global financial crisis, the size and dominance of the financial sector was only given as an explanation for the problems three times – all in the Guardian. For the entire sample of 1,133 items focusing on all the different aspects of the crisis, this explanation was only given 18 times – 1.8 per cent of the explanations mentioned. Eleven of these mentions were in the context of the eurozone crisis, especially when it came to Cyprus, whose financial sector was 7.5 times the size of its economy (Strupczewski 2013).
However, the UK also had, and still has, a very large banking sector. The City is one of the world's leading financial centres and is the most international in its reach (Norfield 2016: 4). This has implications for other sectors of the economy, and for the stability of the economy as a whole. As Ashley Seager (2008a) wrote in the Guardian:
The sector has grown 57 per cent since 1997, in sharp contrast to manufacturing, which has spent most of the past 10 years in or close to recession as a result of the strong pound limiting its ability to sell products abroad.
As well as its magnitude, contemporary finance is extraordinary in terms of its penetration into all areas of the economy and everyday life, and its influence over policy. In other words, contemporary capitalism has become financialised. Economist and former Syriza MP Costas Lapavitsas, who has written one of the best-known books on financialisation (2013), explains that financialisation is the sum of three fundamental tendencies that are widespread in mature capitalist countries. First, financial institutions have come to focus more on trading in financial assets than lending to companies for production. Second, non-financial corporations have financialised themselves, using their profits to engage in financial transactions. And third, households and individuals have increasingly been drawn into the financial system through debt. Financialisation has been accompanied by increased inequality, as financiers have managed to stake more and more claims on the profits of non-financial businesses and people's incomes, in the form of fees, commission and interest. Financialisation was not in itself a subject for media discussion at this time. However, one set of reforms that had enabled the sector to grow so excessively was: deregulation.
The deepest media explanations for the crisis frame the problems with the banking sector in the context of the policies and processes characterising neoliberalism, like deregulation, liberalisation and globalisation. These 'neoliberal' explanations were the third most frequent type of explanation given for the financial crisis, though only accounting for 10.7 per cent of causes mentioned.
Most of these explanations focus on financial deregulation. The Guardian's Polly Toynbee (2008) fumed: 'It began with Margaret Thatcher's Big Bang deregulation and now it has nearly brought the world's economy crashing to destruction.' It wasn't only the left-leaning Guardian that contained this kind of explanation, however. While this category of explanation represents 15.4 per cent of causes mentioned for the financial crisis in the Guardian, for the Telegraph the figure is 7.7 per cent, 6.1 per cent for the Sun, 9.7 per cent for the Mirror and 4.3 per cent for the BBC news.
A piece from the free-market bastion the Telegraph quotes a 'surprisingly candid' hedge-fund manager asking why better regulations weren't in place (Raynor 2008a). The tabloids had their own version too. One piece from the Mirror makes a common juxtaposition between good old-fashioned manufacturing-based capitalism and bad new-fangled finance capitalism:
This was once a country where people built things, and made things ... Then Thatcher arrived and proclaimed that the jobs where people got their hands dirty were old-fashioned and that the financial sector would generate the money we needed to pay our way. New Labour went along with it. It has not worked. That kind of casino capitalism, a culture of unfettered and unapologetic greed, has brought us to this wretched point (Parsons 2008).
Excerpted from "Media Amnesia"
Copyright © 2018 Laura Basu.
Excerpted by permission of Pluto Press.
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Table of Contents
1. Crash, 32,
2. Deficit, 70,
3. Slump, 108,
4. Eurocrisis, 139,
5. Inequality, 178,
6. Curing Media Amnesia, 210,