One of the more memorable lines from the 1976 film about Watergate, ”All The President’s Men,” was the advice given to investigative journalists Carl Bernstein and Bob Woodward by informant Deep Throat to “just . . . follow the money.” During the current economic crisis, we’ve learned a lot about how skewed incentives led to disastrous decisions on Wall Street.
But what about the journalists covering Wall Street, what are their incentives? In an article kindly passed along by a client (thank you!), New York Times media columnist David Carr sheds some light on the subject:
The whole tidy ecosystem of cause and effect — the belief that there is something rational and meritocratic about high finance — has burned away along with the billions of dollars spent to bail out its chief practitioners. When the reporter on the radio says, “Stocks were down 2 percent on news that the jobless figures were worse than expected,” is there any reason to believe him?
“The headline that you will never hear is “The market was down 110 points, a random fluctuation in a very complex system,” said Eric Schurenberg, the former managing editor of Money magazine who is busy building — get this — a financial Web site for CBS. “No one has ever known what was going to happen, but there is this temptation to act like you did. But that fantasy has been exploded.”
To engage their audience, business journalists need to act like things are changing all the time. As it turned out, what didn’t change much was the fundamental lessons: have a diversified portfolio, don’t buy more house than you can afford, don’t take on more debt than you can support, or trade on the margin.
But that’s not what we want to hear from the experts. “You aren’t doing your job right if you don’t have an in-box full of hate mail,” said one financial columnist who didn’t want to be identified.
So now we know: babies want to be cuddled, dogs scratched behind the ears, and journalists simply want . . . to be read. Okay, we’re painting with a broad brush here. But it’s an incentive worth keeping in mind the next time a Yahoo! Finance headline tries to induce you into reading why the Dow dropped, the dollar advanced, or how the markets are expected to respond to this month’s unemployment numbers.
It would be comforting to believe that cause and effect between the economy and capital markets were so easily linked. But not very wise to bet your money on it.
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