The Role of the Media in Triggering the Financial Crisis

The American banking system may be on the verge of collapse. Surely, people saw this danger coming from a far way away. Why is it then, that nobody was able to prevent it and why is was there no hysteria beforehand? A lot of it can be attributed to the role of the media. Newspapers, for example, have always been in the business of information and have, over the recent decades, become ever more involved in the business of entertainment. What this means, is that in-between the advertisements, a newspaper needs to offer a reader something that is spectacular and sensational. This is an integral part of the tacit agreement that each newspaper has with its readership, but it is also a strategy for survival. Newspapers need not only compete with rival newspapers, but also with the non-print media, and increasingly, with the internet. Newspapers, just like advertisements, need to push people's reptilian hot buttons, a term coined by market researcher Dr. G. Clotaire Rapaille, designating a person's primal instincts and desires. In order to grab the attention of the audience, newspapers need to report issues that are immediate and overwhelming. A year ago, nobody would have paid much attention to headlines such as today's. Internal bank memos may well have been more alarmist. But the broad public would not have been interested. This is firstly, because the problem was set in the future, which meant that it did not matter to people at present, and secondly, it was a problem that addressed no person in particular at the time. News stories are 10% about content and 90% about timing. In order to push the reptilian hot buttons, a headline needs to appear precisely on the right day, for people to take interest. The banking crisis mirrors, to some extent, the issue of global climate destabilization. Today, the public heeds little interest in the matter, because the problem is future-oriented. Newspapers bear alarmist headlines concerning the banking crisis now, because they pertain to an immediate and overwhelming crisis. They write about hurricanes and floods, when they are occurring. After all, the media is not meant for prevention of catastrophes, it is about blowing them up to immense proportions, to attract readers to their front pages. Therefore, it is not surprising, that the banking crisis was not prevented. The mobilization of people needs to be accomplished at the right time and the media is not the medium for such actions, firstly, because of its business mentality, and secondly, because its audience has different demands.

Summary of Doctor's bill, from The Economist

When the current global financial crisis first became apparent during August of last year, the Federal Reserve responded by lowering interest rates to cushion the economy and by assisting commercial and investment banks in financing their holdings of securities. The Federal reserve was also in complete aversion to the use of public money for its operations at that point, because it believed the economy and the financial system to be solid and relatively sound. However, the crisis was gradually intensified by the growing prominence of the "shadow banking system" and its influence on the trends of global financial regulation. The remedy now proposed by Ben Bernanke, chairman of the Federal Reserve, and Hank Paulson, the treasury secretary, is one riddled by uncertainty. The Troubled Asset Relief Program(TARP), as it is called, is an emergency measure, primarily intended to avoid any worst-case scenarios and to evade a depression of the dimensions of 1929. The plan foresees for the authorities to spend $700 billion of mortgage-related assets for this purpose, but what seems to be largely disregarded are the wide-ranging differences between the current crisis and the one of 1929. Experience, in the case of today, is a poor guide, seeing as in the past, public money was only committed to financial systems when bank failures and insolvency were widespread. Under pressure to please the taxpayer, lawmakers have opted for a response to spare him, turning instead on Wall Street. TARP may mark a turning point, however. It could break the vicious cycle referred to as the mortgage market and it could restart lending. A lot, though, depends on the vigor of the response. Politicians today, are determined, not to "underdo" it, but TARP, as it stands now, retains a number of flaws. Most prominent is the danger that the problem it seeks to address has since mutated. With high degrees of uncertainty, however, comes the risk of weakening the dollar and of encouraging the reluctance of buyers to take responsibility, once the government decides to retreat its influence. Despite its inherent flaws, however, for now, what matters is the stabilization of trading prices. What comes next, is the need to adjust to a market more heavily regulated by the government than it has been in a long time.