Unlike most trade presses, the financial press are largely ignorant of the subjects about which they write. Other media outlets are no better. As Exhibit #1, I bring to your attention the BBC's continual outpourings on Big Bang in 1986 and their implication that this led to today's financial crises, although the media and in particular the BBC have failed to explain how the abolition of fixed commissions and the distinction between jobbers and brokers had anything to do with the liquidity of Bradford & Bingley, RBS' overpayment for ABN Amro, AIG's build up of a massive unsupervised derivatives book in its London office and the failure of Lehman Brothers.
The funny thing is that if you go to another pink paper and cut and paste text from their articles you get the following text:
High quality global journalism requires investment. See our T&Cs and Copyright Policy for more detail.
.. and it is hard to disagree with that. Except that most financial journalism is not high quality. 75% of the "news" in the financial pages is simply a rehashing of corporate press releases. Once the journalists step away from those to what they think are real financial stories, they start to flounder.
Exhibit #2 is the story in today's pink paper with the headline that says the German government is €55.5 billion better off than previously thought because of an accounting error at FMS Wertmanagement, the bad bank for Hypo Real Estate.
True enough, there was an accounting error in the company which involved the failure by the banks accountants to set off collateral against a port folio of derivative products, which resulted in larger amounts than necessary being reported on both sides of the balance sheet.
If the hack concerned knew anything about finance he would have realised that offsetting assets and liabilities doesn't make you richer, and if he wasn't even that smart, he should realised that when the bank adjusted its balance sheet to show a lower value of assets by €24.5bn ($35bn) for 2010 and €31bn for the year to June 30 2011, then it could hardly be getting richer. Fortunately for the bank and the German government it also reduced the reported value of its liabilities by €24.5bn ($35bn) for 2010 and €31bn for the year to June 30 2011.
Go and look at the other paper now and you will find that they have backtracked, and rather than saying that they got the story wrong, they report that "Wolfgang Schäuble, German finance minister, has demanded an urgent inquiry into how an apparent accounting mistake led to an embarrassing €55.5bn overstatement of the debt burden of a “bad bank”.
Which is true, but it isn't the same as being €55.5 billion better off.