Sunday, October 05, 2008

The story so far …

click the pic to enlarge
In what has been a roller-coaster and exhausting week, we've got to a position where we've got part of the story – not the whole story, which is far more complicated – but enough of it to make sense.

Through this blog, in no less than 20 posts since Saturday week last – listed here (with links in chronological order) - when we cranked up our coverage of the financial crisis, some of the story gradually emerged.

Now, in a masterpiece of compression, Booker has managed to squeeze the story so far into his column published today, accompanied by an inspired piece of photoshopping from The Sunday Telegraph graphics department (above). I suspect this one will get a lot of use.

It almost goes without saying that we are so far ahead of the game that no one is even close when it comes to reporting on the background to this current phase of the financial crisis.

There is no dispute amongst the players that the driving force behind the stress in the banking system at the moment is an almost unprecedented liquidity crisis, which is having a massive knock-on effect in the economy as a whole. What we have to offer is a partial explanation that stands up to scrutiny, one which an awful lot of people don't want told – and as many don't want to hear or believe.

That you will see nothing of this reported so coherently in the general run of media reporting stems, I think, from three things.

Firstly, the media suffers from the fatal flaw of specialisation – and excessive compartmentalisation. In this story, there are four, distinct main elements: the domestic political issues; the technical banking and economic issues; the EU dimension and the US/international element.

The problem for the media is that the political hacks write about national politics and the financial journalists deal with financial issues. The EU dimension is regarded as entirely separate (unless there is a direct domestic input) and the US/international element is handled by the foreign desk. There is very little cross-over so no one sees the whole picture.

Secondly, for a variety of reasons – some good, some bad – the hacks are not up to the job. The political hacks, in particular, are attuned to reporting on the tittle-tattle of the Westminster village. When they come up against a hard-edged issue like this, with a strong technical element, they are simply out of their depth.

As regards the financial journalists, they don't understand the politics and many of them don't understand the technicalities either. Some make the understandable but dangerous mistake of confusing banking with economics. Economics – so some claim – is a science. Banking is not. It is more of a black art, and the two should never be confused.

When it comes to the EU dimension, neither the political nor the financial hacks even begin to understand it (with maybe one exception). Because they don't understand it, they ignore it. Their whole self-esteem is based on their being able to project their own cleverness and, so profound is their ignorance, they cannot admit it, even to themselves.

On the other hand, the very few hacks that cover the EU – and there are very few – are kept out of the loop. They are not invited to the party and are confined to writing bit pieces which, if they have any domestic element, are "Londonised" by the editorial staff and thus butchered out of all recognition.

As for the reporters on the US scene, they are not making the links between the US and the EU, which operate common, harmonised regulatory systems.

Thirdly, there is a very active disinformation programme going on. All sorts of people – David Cameron being one – really do not want you to know anything about the EU dimension, other than what they chose to let out. The Commission and the rest of the "colleagues" certainly do not want you to know the detail. And the general run of europhiliacs would be horrified if the exact role of the EU was known.

That we have pieced together some of the story, therefore, is not to claim any special skill, understanding or knowledge. It is more a matter of perspective – not being bound by the traditional boundaries. Add to that, the application of an enormous amount of time spent researching the internet and talking to a great number of people, some at very high level in the system, and the bits come together.

So far, we have tested the "bones" of the story on a number of experts. None we have spoken to disagree with our basic premise. Some say it is more complicated than we portray. We know that. Some say there are other factors involved which also have considerable influence on the current crisis. We accept that.

But the essence of our thesis is that the "hidden hand" of the EU is making a bad situation much, much worse and, more particularly, hindering attempts to remedy matters. The contrast is easily seen with what is happening in the US, and that contrast will become more apparent as time passes.

One expert we talked to said that, because of the recent action in America, he expected the US economy only to dip into a mild recession and then start to recover within 18 months. The EU, however – because of the inherent inflexibilities in the regulatory system and the tortuous decision process – he expected to tip into a much deeper and more damaging recession, which would last much longer.

If he is right – and we suspect he may be – that will be yet another legacy of Edward Heath who took us into the benighted organisation that is now the EU, in which we have been kept by a succession of politicians who have not the sense to see that, in the final analysis, it will bring us all down.