Why the business media failed to see the oncoming crisis

Matthew Fraser and Soumitra Dutta write Friday in the Financial Times a list of reasons why business journalists didn’t do a good job in predicting the current economic upheaval.

Here are some of them:

1. First, business reporting is driven by competitive pressure for scoops, which leaves little time for off-diary features, analysis and “big picture” reflections on larger trends.

2. Second, many journalists lack professional training in business. Very few business journalists possess professional qualifications — as MBAs, M&A lawyers or financial accountants — that equip them with the quantitative skills needed to grasp the fine-print of the complex dealmaking they cover.

3. Third, like everybody else, business journalists have short memories. Economists frequently observe that our collective memory of previous financial crises is never sufficient to prevent the recurrence of a similar frenzy. True, the current banking crisis has its own characteristics and is not identical to a stock market crash or a speculative bubble. But the underlying cause of these painful episodes is invariably the same: cupidity, and in many cases stupidity.

4. Fourth, business journalists become cheerleaders for speculative frenzy. Walter Bagehot, the celebrated editor of The Economist in the 19th century, once observed that ‘people are most credulous when they are most happy.’ This helps explain why over-leveraged homeowners and over-bonused investment bankers were blinded by credulity and greed. It may also explain why so many seasoned business reporters failed to blow the whistle.

Read more here. Fraser, a veteran business columnist and former editor-in-chief of Canada’s National Post, is a senior research fellow at Insead. Dutta is Roland Berger chaired professor of business and technology at Insead.

There’s one glaring mistake in their commentary. They write that there’s a show on CNBC called “Money Honey” when there is not. That’s Maria Bartiromo‘s nickname.