Understanding journalism’s complicity in the financial crisis

The nor­mally thor­ough Howard Kurtz has a piece run­ning entitled Press May Own a Share in Fin­an­cial Mess. A flavour?

PBS’s David Bran­cac­cio says that “we journ­al­ists have had a long his­tory with accept­ing what the smart people hand down to us, espe­cially on com­plic­ated stuff.… When I would cover these very issues about prob­lems with reg­u­la­tion, prob­lems with ‘is this a dis­aster wait­ing to hap­pen?’ people would say: ‘Well, young man, you don’t have an MBA like I do. Trust us. We went to busi­ness school.’”

Well, duh! If instead of this type of fare you want a reasoned — albeit dry — explan­a­tion of busi­ness journalism’s role in boom and bust cycles, then please read The Bubble and the Media [pdf] by Alex Dyck and Luigi Zin­gales. Writ­ten back in 2002, the abstract tells it all:

We argue that cor­por­ate report­ers have strong incent­ives to enter into a quid pro quo rela­tion­ship with their sources, where they receive private inform­a­tion in exchange for a pos­it­ive spin on com­pan­ies’ news. Since the value of this rela­tion­ship is higher dur­ing booms, so, too, will the pro-company bias.

Incid­ent­ally, you can read Zin­gales on the Paulson plan here.

Tagged as: Alex Dyck, David Brancaccio, Financial Journalism, Financial Mess, Howard Kurtz, Luigi Zingales, reporting