Expert Tips on How to Cover a Crisis

Editor & Publisher, February 1, 2009 | Go to article overview

Expert Tips on How to Cover a Crisis


Barry Ritholtz, who runs equity research firm Fusion IQ and writes one of the Web's most popular economics blogs, The Big Picture -- much quoted nowadays by reporters -- considers himself "unburdened" by a classical economics education, and so "is free to ask the questions most economists can't." And Ritholtz, 47, wants reporters to ask more and better questions when confronted with economic data in these days of crisis.

You might start by questioning this allegedly bedrock economics principle: Private markets invariably are self- correcting, and driven by rational human beings. And those rational human beings, so the theory goes, will make well-thought-out decisions that allocate scarce resources so efficiently that ultimately we all benefit.

Or maybe, as we've now painfully learned, not so much.

On Ritzholtz's must-read list for reporters: Thomas Gilovich's How We Know What Isn't So: The Fallibility of Human Reason in Everyday Life because "it helps you understand where your mental processes can lead you astray." Ritholtz's own book, Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy, comes out this month. Last year he gave a three-hour seminar as part of Columbia University's Punch Sulzberger News Media Executive Leadership Program.

His wish list for reporters covering this and future financial crises includes:

Be more skeptical of sources. "You have to play lawyer, ask what is this person's motivation for saying what they're saying," claims Ritholtz. He found the best reporting on the automobile industry's true financial predicament was at an upstart Detroit Web site that supplies unvarnished automotive reviews and editorials about the industry, The Truth About Cars. "They understood the business and its challenges; they were railing for several years against the unsustainable nature of the capital structure of the Big 3," he says.

Question data, constantly. Last March, for example, The Wall Street Journal ran a story saying the vast inventory of foreclosed homes was starting to bring people back into the housing market, and cited figures from the National Association of Realtors showing a jump in sales in February of 2.9% from the month before. But Ritholtz points out that in every year home sales are lowest in January, so changes from January to February are measuring seasonal differences, not actual improvements in house sales. The tendency to overemphasize the most recent data point in a monthly series is called the "recency" effect. "It is a foolish way to ignore the trend and give greater emphasis to today," he notes.

Give good context. The struggle to control the narrative of how the housing crisis and ensuing financial meltdown occurred is in full swing, exemplified by Karl Rove's op-ed in the Wall Street Journal in January that fingered Fannie Mae and Freddie Mac as among "the principal culprits of the housing crisis. …

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