Since the near collapse of the international banking sector in 2007-8 many of us have wondered why the news media gave so little warning of the huge crisis coming. Media companies and individual journalists have tended to offer two defences, interspersed with the occasional mea culpa. The first is that no one, including top financiers and politicians, saw it coming, so why should they have? The second dredges through the tea leaves of past coverage to declare that they and others did sound warnings but no-one was really listening. Though they contradict each other these explanations contain grains of truth. Many at the top, who should have known better, stuck to their flawed financial market models and seemed unable to comprehend alternative scenarios [i]. Yes, a handful of journalists, such as Gillian Tett at the FT, did publish their concerns periodically prior to Northern Rock’s collapse in August 2007. 

However, both attempts to exonerate the media obscure the main problem: financial journalism, like financial regulation, over recent decades has been ‘captured’ or neutralised by those it is meant to hold to account. This became increasingly clear to me during two lengthy studies of the UK’s financial sector and its news coverage [ii]. The few dissenting journalists, prior to the crash, were all but drowned out by the uncritical and/or over ‘exuberant’ financial news copy that had become the norm. I am also convinced that the problems of the financial sector were more widely known in City circles than is now publicly admitted. That they were rarely revealed in the media should not surprise us if one accepts the confident statement made by one of my interviewees that ‘the national financial press are written for the City by the City’.

In the immediate post-war decades, this was not such an obvious problem as the City and financial media were rather different entities. But, since the early 1980s, the power and size of the UK’s financial sector, as in many other nations, has grown significantly. At this point, before the transformations brought by financial deregulation (‘Big Bang’, 1985-6) and globalisation, the London Stock Market and the UK’s banks, were rather smaller, relative to government finances and GDP. That all changed. By 2007, before the crisis began, the total managed annual expenditure of the UK Government was £587 billion and GDP was £1.24 trillion. But, the top UK Fund Managers in the City, managed £3.4 trillion. The international banking system operated funds of $512 trillion or ten times the GDP value of the entire world economy, or over 400 times the UK’s GDP. By 2008, in just the space of a decade, the total derivatives market (which speculates on future values) had risen in value from $15 trillion to $600 trillion or roughly 12 times global GDP [iii].

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Accompanying this sudden growth in concentrated financial elite and institutional power has been the weakening of news reporting of the sector. Like most news sections, financial media has suffered from an increase in output demands at the same time as news resources have declined [iv]. Nick Davies concluded that journalists now have to fill three times as much news space as they did in 1985. This has made reporters increasingly dependent on ‘information subsidy’ supply, from news wires, rival publications, previous copy and, most importantly, PR material from those they report on. Lewis et al.’s [v] study of 2,207 newsprint items and 402 broadcasts, found that 19% of press stories and 17% of broadcasts were entirely or mainly reproduced PR material. 49% of press stories were either entirely or mainly dependent on news wire agency copy, much of which had come from press releases. The study did not single out financial news coverage but did note that business news was one of the ‘most PR-informed topics’ and that the ‘business/corporate world’ was the ‘main source of PR activity overall’.

Since the early 1980s financial and investor public relations have grown to fill the information supply gap and, in the process, have squeezed out non-City sources. In the 1980s and 1990s, corporate PR consultancy fee income rose eleven fold in real terms [vi]. Financial public relations was at the forefront of the PR industry’s expansion in that period, drawing the highest fees and being the largest professional section in the Institute of Public Relations (now CIPR). The specialist investor relations industry also developed to ensure further control of financial information flows. Several established PR professionals, many of them former financial journalists, stated that financial journalism was the most PR-dependent sector in national news and that the FT was the biggest user of it amongst the national press [vii].

Interviews with some 150 participants, including journalists, analysts, PR specialists and fund managers revealed several reasons why reporters were overly-dependent on those they reported on.

First, in contrast to Westminster politics, City leaders do not normally need to talk to a wider public via the news media. Reporters thus have little bargaining power. Second, the world of finance has become ever more technical, global and information-dense. This makes it very hard for journalists to keep up or be able to interpret events and trends. Third, financial and business news does not draw much public interest but does draw greater advertising revenues. Advertising, predominantly funded by and aimed at corporate elites, thus has greater sway in this area of news coverage. Fourth, other ‘independent’ sources of information and opinion for journalists, such as brokers’ analysts, are often equally dependent on the goodwill and information supply of those companies they report on. All of which makes financial journalists extremely dependent on the City itself, both for information and interpretation of that information, as well as for general access. As one financial journalist explained this makes it very hard to uncover much in the City: ‘You have to be very stubborn-minded to pursue an investigative story on your own. The companies don’t like it, the PRs don’t like it, the brokers are against it, and the City doesn’t want a knocking story’.

Unsurprisingly, it is news sources from the City itself that have come to dominate financial and business news coverage. For much of the 20th Century, politicians, trade unions, academic economists and others had their views reported in these news sections alongside corporate and City opinion. Wayne Parsons’ [viii] historical study notes that the great debates on economic policy, from Keynesianism to Monetarism, were usually at the heart of coverage. Coverage reflected the spectrum of opinion in the post-war settlement. But, by the late 1980s it was City opinion and corporate PR hyperbole that had increasingly come to fill the space. In one content analysis of 425 national news articles, covering the 1995 take-over of Forte by Granada, just 2.8% of the 501 individuals cited came from outside the City [ix]. The 80,000 employees, 75,000 small shareholders and millions of customers who had a stake in the outcome barely had a say.

Consequently, financial and business news coverage reproduces the prevalent ideas, norms and values of those who work in those sectors. In the study of the Forte take-over, only 7.1% of articles even mentioned the impact on employees and only 4.2% the impact on customers. Doyle’s [x] study of financial reporting, in the wake of the Enron scandal, found that financial journalists ‘readily acknowledged’ their general acceptance of pro-market ideologies. Durham’s [xi] content analysis of the FT’s coverage of the Thai currency crisis in 1997, produced ‘a consistent ideological position’ that elevated IMF and Western financier accounts and demands over those of the Thai Government and its people. Similarly, Kantola’s [xii] analysis of FT content reveals that its coverage of some 32 elections between 2000 and 2005, repeatedly backed candidates which supported pro-market reforms, and was critical of democracies, publics and leaders that did not.

This same ‘capture’ of financial news coverage of course has equal significance for investment patterns and practices. This goes beyond the simple cheerleading of particular company shares, commodities and other tradable goods. It means that large-scale frauds and scandals, such as at Enron, WorldCom and Bernie Madoff’s pyramid scheme, can continue unnoticed for years or decades, regardless of basic mathematical or historical logic. It means that bubbles are cheered rather than questioned [xiii]. It also ensures that new financial practices and products, such as derivatives and CDOs (collateralized debt obligations, of the kind which hid the risks of subprime mortgages), or the growth of the unregulated shadow banking system, go largely unquestioned. When a higher proportion of bank capital is unregulated than regulated, or derivatives values reach many times actual world GDP values, or stock market values are way out of kilter with historical corporate earnings, or house prices become so much higher than annual salaries, or individual investment schemes continue to make well-above market-average profits for many years, then questions should be asked. But they rarely are. Nor is it asked often enough why the revolving doors, operating between financial regulators/policy-makers and top financial companies, spin ever faster [xiv]. During my later interviews (2004-06) I did talk to several City participants who did ask such questions and had great concerns about what was happening. One company chairman correctly plotted out the entire trajectory of what actually happened three years later, concluding ‘In 35 years of it I’ve never been so concerned’. People did know but financial leaders, politicians, regulators and journalists failed to engage with the problem.

A clearly identified professional fourth-estate remit of news journalism is to hold the powerful to account. This ideal was once simply applied to the state. In recent decades power in capitalist democracies has migrated away from democratically elected governments and towards other centres and institutions, such as those of the financial sector. Unfortunately, not only has the news media failed to follow these other trails, its ability to do so has been increasingly compromised. Whatever the intentions of journalists, their ability to investigate the opaque world of high finance has been neutralised. Unless financial news coverage is substantially changed journalists will continue to miss the large-scale frauds, financial black holes and bubbles that are now indicative of our barely-restrained financial sector.

Journalists will continue to report to the City rather than on it.

[i] See, for example, Krugman, P (2008) The Return of Depression Economics and the Crisis of 2008, London: Penguin Books; and Bootle, R (2009) The Trouble with Markets: Saving Capitalism From Itself, London: Nicholas Brealey Publishing

[ii] See Davis, A (2002) Public Relations Democracy: Public Relations, Politics and the Mass Media in Britain, Manchester: Manchester University Press; Davis, A (2007) The Mediation of Power: A Critical Introduction, London: Routledge

[iii] Figures and references in Davis, A (2011) ‘The Mediation of Finance’ in Winseck, D and Jin, D eds. Media Political Economies: Hierarchies, Markets and Finance in the Global Media Industries, London: Bloomsbury

[iv] See, for example, Davies, N (2008) Flat Earth News, London: Chatto and Windus; and Lewis, J, Williams, A and Franklin, B (2008) ‘A Compromised Fourth Estate? UK News Journalism, Public Relations and News Sources’ in Journalism Studies, Vol. 9, No. 1, pp 1-20

[v] Davies, 2008, Lewis et al., 2008, op cit.

[vi] Miller, D and Dinan, W (2000) ‘The Rise of the PR Industry in Britain, 1979-98’, European Journal of Communication, Vol. 15, No. 1, pp 5-35

[vii] Davis, 2002, Davis, 2007, op cit.

[viii] Parsons, W (1989) The Power of the Financial Press: Journalism and Economic Opinion in Britain and America, London: Edward Elgar

[ix] Davis, 2002, op cit.

[x] Doyle, G (2006) ‘Financial News Journalism: A Post-Enron Analysis of Approaches Towards Economic and Financial News Production in the UK’ in Journalism: Theory, Practice and Criticism, Vol. 7, No. 4, pp 433-52

[xi] Durham, F (2007) ‘Framing the State in Globalization: The Financial Times’ Coverage of the 1997 Thai Currency Crisis’ in Critical Studies in Media Communication, Vol. 24, No. 1, pp 57-76

[xii] Kantola, A (2006) ‘On the Dark Side of Democracy: The Global Imaginary of Financial Journalism’ in Cammaerts, B and Carpentier, N. (eds.). Reclaiming the Media: Communication, Rights and Democratic Media Roles, Bristol: Intellect

[xiii] See Shiller, R (2001) Irrational Exuberance, New Jersey: Princeton University Press; and Cassidy, J (2002) Dot.Con: The Greatest Story Ever Told, London: Penguin/Allen Lane

[xiv] Ferguson, C (2010) Inside Job, Sony Picture Classics; and Taibbi, M (2011) Why Isn’t Wall Street in Jail?, in Rolling Stone, 3.3.2011, New York