Media Moves

Top myths in media coverage of market correction

March 2, 2007

Barry Ritholtz writes on TheStreet.com about the myths that were reported in the business news media earlier this week that explained why the stock market fell.

Barry RitholtzRitholtz wrote, “It didn’t take very long for the spinmeisters to get busy. Numerous reasons were spun out as to why stocks fell — ranging from merely uninformed to misleading to utterly false. I have seen, read or heard each of the following reasons offered either on the major networks, in the business press, or on the radio. While you have likely seen most of these, I doubt you have seen the facts figures and analyses that follow each.

“My top 10 myths of the Great Correction of 2007:

1. Chinese regulators caused the meltdown.

The timing of the Chinese news release makes this statement suspect: On Sunday, China’s main stock exchanges (in Shanghai and Shenzhen) issued new guidelines regulating member securities companies.

“An article on the subject ‘China tightens regulation of securities dealers with new rules’ was posted at www.GOV.cn on Monday. Here is an excerpt:

China’s Shanghai and Shenzhen stock exchanges issued on Sunday the new rules of regulating their member securities companies in a bid to ward off risks in stock trading. The rules, which will come into effect on May 1, set limits to the varieties, methods and scales of stock trading that dealers are allowed to conduct, preventing them from engaging in high-risk business beyond their capacity.

“Note that these details were released on Sunday, and on Monday Chinese markets set new all-time record highs! Indeed, despite recent official discussions of new capital gains taxes, increased regulation and the government’s desire to reduce speculation in China, their indices had advanced 13% in the prior six sessions — all setting records.”

Read more here.

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