Most financial news is stuck in poverty

I was browsing the New York Times Book Review last Sunday morning when a tiny blurb identifying the reviewer grabbed me. The critic, one Jim Holt, is writing a book about “the puzzle of existence.”

How’s that for ambition!

While anxiously awaiting the results of Mr. Holt’s inquiry, I’ll admit to lesser aspirations — like pondering why the public knows so little about the nation’s money business.

The so-called populist outrage about Wall Street’s “greed” certainly is justified, but why so long in coming? Why the surprise? And ignorance?

Financial journalism should take some responsibility. Except at a few major newspapers and specialized publications (James Grant’s Interest Rate Observer, anyone?), there’s simply not much of it.

Instead of stories piercing the veil, we get sports results — Dow off 70, NASDAQ Composite down 53. There’s little context so when Thornburg Mortgage of Santa Fe goes bankrupt we may not understand why. Very often the language lends Wall Street a dignity that — as we’ve recently learned — defies reality.

Let’s illustrate with a fictional entry:

The Dow-Jones Industrial Average fell 175 points in heavy trading yesterday as investors reacted negatively to reports that the Administration will ask Congress for legislation limiting free trade.

How does this sentence fail? Let me count the ways:

First, it measures the market via the Dow. But that index has become so unrepresentative that Wall Street professionals prefer other indices, primarily the S&P 500.

Now consider the word “investors.” Many exist, notably state investment and pension funds. A lot of daily volume comes not from investors, though, but gamblers. They include but are not limited to day traders. You also may have heard of the high rollers at Lehman Brothers and Bear Stearns and Merrill.

Still more ”heavy trading” comes from firms employing arbitrage — buying and selling similar financial instruments on different markets to exploit price differences. Millions of computerized transactions times (say) a nickel can turn into real money.

That “investors” misleads is trivial compared to the explanation of the market’s move in my fictional entry. Most days the reason cited is guesswork; nobody knows why.

That was one of my first lessons years ago when I lucked into jobs at Financial News Network, first, and then CNBC. At both shops, market experts — investment gurus, CEOs, economists and business academics — provided a priceless education.

Absent a major news story (war, peace, natural disaster, a Treasury plan to save major banks), it was impossible — these professionals agreed — to say why the Dow fluctuates.

Indices move, they explained, for reasons ranging from an auto sales projection to a technical analyst’s recognition of a chart pattern by way of a million other variables.

Ah, variables — the word reminds me that some of these investment stars (several appeared regularly on Louis Ruykeyser’s popular “Wall Street Week” program) saw the market as a casino. As educated gamblers they could profit, but chance reigned supreme.

Ever read that in the financial pages?

My fictitious market report mentions “free trade.” I put it there to emphasize that financial journalism frequently flies to never-never land on imaginary wings. Free trade is the clean coal of economics.

I could continue, but you get my drift. While all journalism is fallible, financial news presents special difficulties because its subject matter is arcane.

Financial reporters and editors should, therefore, reexamine the conventions of their trade, including its language.We readers can burnish our skepticism and seek alternative accounts of what’s happening.

That’s requires effort, true, but nothing compared to solving the puzzle of existence.