Is sensationalist reporting and apocalyptic political rhetoric helpful?
For over a week now we have watched as the US public endured a barrage of dire warnings from a president fighting for his political legacy, whilst the world's media displays a barely disguised glee when 'breaking news' of a the latest banking catastrophe. It might sell papers and attract viewers. It might even turn out to be Gordon Brown's Falklands (Bush is surely beyond help), but it can't be helping to calm the jittery nerves that are serving to turbo-charge this mess.
Of course, dubious lending and investment practices are the root cause, the underlying malaise, of the jumbo sized pickle we find ourselves in now, but it is undoubtedly being prolonged and deepened by a profound loss of confidence in our financial systems and, of course, the banks.
Northern Rock is a case in point. Yes it was over-exposed to dodgy mortgages, but no bank could survive if all its customers demanded their money back at the same time - they don't keep it all in nice neat piles in a safe, they invest it, they lend it to each other and so on. In fact the whole banking system, with all its complex interdependencies, relies upon the confidence of banking customers - leaving money in the bank is what allows the whole systems to function. So when leaked news of the trouble at Northern Rock was delivered in sensational headlines its fate was sealed. Assurances that money was safe were overwhelmed by images of queues forming, and so they got longer and longer and Northern Rock turned to sand. Now the banks are loathe to lend money to each other in case they don't get it back and that is where the pain for mortgage customers is coming from.
The fact is that, in the mainstream media, there is no news like bad news. It sells papers, so it should come as no surprise to see our front pages littered by scare stories. For me, the media has helped to create a climate of fear and uncertainty in which rumour can now unravel financial institutions (with all their flaws) that have been around for hundreds of years. In the City every day brings a new rumour about which will be the next bank to go. The problem is that they spread like wildfire and become self-fulfilling. The share price plummets as twitchy investors run for the hills, then the media weighs in. Sometimes that is enough - look at Bradford & Bingley. No-one rushed to withdraw their money, yet with confidence in the bank at a low ebb and the share price down to around 17p, it was unsustainable.
A quick look a recent headlines tells its own story. Following the collapse of the US 'bail-out', the Telegraph went with 'Staring into the abyss', the Mirror went with 'World of pain' whilst the ever balanced Mail plumped for 'Meltdown on Wall Street'. In the Times, the paper's economics correspondent told us we faced: "the failure of every leading bank in America and, for the rest of the world - particularly Britain - the nationalisation of all leading banks, insurance companies and other financial institutions."
Then the feeding frenzy began in earnest. The widely reported view was that 'More UK banks would fail'. Sure enough, in the following days, most of the major banks suffered steep falls in their share prices, with RBS leading the downward charge. Next up, was a glut of stories telling us that 'savers are rushing to move their money away from the banks they think are at risk'. I think it's easy to see a pattern emerging, a vicious cycle fuelled by the media and not helped by Bush's hyperbole.
By comparison, British politicians have gone about things in a far more measured way. Pledging to work together to 'do whatever it takes' to protect the public and avert the crisis whilst quietly reassuring the public by raising savings guarantees.
The question is, given that public confidence in banks is a vital element of any recovery in the economy, should reporting be subject to public interest tests? It might make for a juicy headline, but isn’t running a story based on scurrilous rumour simply against all our interests? People are already worried enough without the media and some politicians stoking the fire.
Perhaps the best way to guard against succumbing to the hysteria and becoming part of the problem is to arm yourself with the facts. It's a about taking sensible precautions about where to keep your money and understanding how the savings compensation scheme works, so you are protected should the worst happen.
