Or, how FT Alphaville spent the fall and winter of 2009/2010.
We bring it up because some sociologist-boffin has penned a paper suggesting the media made the Greek crisis worse with their relentless coverage and “sarcastic” headlines (no name check for FT Alphaville though, disappointingly).
The implications of the paper are uncomfortable and what’s more, it’s also riddled with factual inaccuracies and half-backed hypotheses. Just bad research that.
You might even say, we’re doing our journalistic duty in disassembling it…
Here, for instance, is a an excerpt that should give you the gist of the thesis:
… While a comparison of the fundamental situation may yield some explanation for the cross-country differences the dynamic over time seems somewhat more puzzling. The deterioration of Greece’s funding conditions over time occurred against the background several consecutive consecutive credit rating downgrades. Although no significant further changes to Greece’s fundamental outlook were reported after the October announcement, all three major rating agencies changed their assessment of Greece’s creditworthiness more than once between December 2009 and April 2010. On 27 April 2010, Greece was downgraded to below investment-grade by Standard & Poor’s, fueling speculation about the country’s default. While the rating downgrades may be seen as triggers for a rise in perceived credit risk, remarks by the rating agencies suggest that the series of consecutive changes were themselves driven by developments in the market for government bonds. This leads back to the question: What drove the downward spiral in the level of confidence vis-à-vis Greece that moved the market and almost led to the country’s insolvency? …
The inference, of course, is that the media fueled investor ‘distrust’ in Greece.
We say wait just a second. Because we remember events unfolding something like this. On October 21, 2009 Greece announced it would be revising its budget estimate upwards. On October 29 Moody’s put Greece on review for a downgrade without ever mentioning government bonds. It wasn’t until Fitch actually downgraded Greece in December that the country really came to the media’s attention.
And here’s why.
It became obvious quite quickly that a raft of downgrades would have big implications for Greece because of the way in which its banks had been tapping liquidity from the European Central Bank. Downgrades would make Greek bonds ineligible as collateral for the ECB ops, once the central bank returned to its ‘normal’ non-emergency collateral requirements. It was pure cliff risk.
As it happens, the ECB ended up being very conscious of that risk and in March decided to extend its emergency collateral rules — enabling Greece to keep sipping at the cup of ECB liquidity. Unfortunately by then it was too late. In the words of Warren Buffett, the tide had gone out and full frontals were on display.
The sheer scale of the way Greek banks had been buying Greek bonds to repo them at the ECB had become clear. They were the biggest buyers of Greek debt out there, and at the same time they were backed by the full faith and credit of Greece. Loopy.
It was the tipping point for Greek banks and their sovereign. Or the point at which markets became uncomfortable with the banks’ reliance on ECB funding. Greek banks became less willing to keep buying Greek government bonds as the market became increasingly reluctant to reward them for the ECB carry-trade.
From there the whole thing snowballed.
Back-and-forths between regulators and politicians, uncertainty about the ECB exit and burdensharing for bond investors combined to make Greek debt a very risky proposition. Real money investors started demanding a premium to compensate them for this risk et voila — higher (unsustainable) Greek bond yields. And don’t forget revelations about Greek statistics were still coming at this point.
In conclusion, then…
Media to blame for the Greek crisis? Puh-lease.