Saturday, February 14, 2009

The quality of financial journalism can go down as well as up

The Times is thunderously angry about the Lloyds takeover of HBOS, as supported by the Government:

Lloyds Banking Group revealed yesterday that losses incurred by HBOS, at £10 billion, would exceed expectations by £1.6 billion. Lloyds' share price fell by 40 per cent within minutes of the announcement.

As the Government holds a 43 per cent stake in the company, much of the loss will be borne at taxpayers' expense. The Government invested £17.7 billion in Lloyds and HBOS on behalf of the taxpayer. On yesterday's prices, the loss on that investment to date amounts to £8.3 billion… The responsibility for this perverse and costly outcome rests with the Government.

First of all, fuming about a “loss” to the taxpayer based on the share price on one particular day is meaningless. Back-of-an-envelope calculations of £8.3bn – “or £143 for every person in the country” – tell us nothing, because, funnily enough, the Government didn’t sell its 43% stake yesterday. So this “perverse and costly outcome” isn’t in that way costly, and it isn’t an outcome. To treat it as such is perverse, unless your aim is to scandalise your readers rather than informing them.

(The fact that the overall market valuation of Lloyds dropped by about £10bn yesterday, based on the news that losses had been just £1.6bn worse than expected, suggests that this market response may have been, as these things so often are, a short-term overreaction.)

Second, what would have happened if the Government hadn’t enabled the Lloyds takeover of HBOS back in the autumn? Well, either HBOS would have collapsed, in which case far greater carnage would have ripped through the financial system and we’d now be in a slump that would dwarf the current recession, or we’d have nationalised HBOS to save it, in which case all its losses would now be public liabilities anyway - and the Times would be denouncing the Government for such a “perverse and costly outcome”.


Liam Murray said...

Agree that the £8.3bn 'loss' is nothing of the sort (yet) but journalists do this all the time and are usually only called on it when it grates against someone's ideological preferences.

The Guardian's ludicrous 'tax gap' series talks in earnest terms about 'missing billions that could fund schools 'n' hospitals' lost through tax avoidance - it can't be missing if it was never there and it's particularly objectionable to frame it on schools etc.

Tom Freeman said...

Heh. I don't know if this happens to you at all, or whether it's just a result of my way of writing, but I find that this happens to me quite a bit:

I decide to write a post making point X. While I'm at it, I decide to add in point Y as well, which - while less important and hardly worth a post in its own right - seems just about worth a mention.

Comments are far likelier to focus on point Y than point X. Some blogging variant of Murphy's law?

Anyway, I take your point but only add that I wouldn't have called the Times on the hypotheticality of this loss if I hadn't also been calling them on the suggestion that the takeover was responsible for it!