ABSTRACT
This chapter aims to provide an original perspective on the role of the media in the 2008 global financial crisis by focusing on information flows between reporters and finance professionals.1 This requires a significant revision of the orthodox account of how information underpins financial market activity. As Hyman Minsky’s Financial Instability Hypothesis (1977, 1982) presciently recognized, financial crises occur cyclically, not because of a lack of accurate information or transparency, but because markets become sensitized to their own price signals as asset values are expanding. This gives rise to self-reinforcing feedback loops that engender investor confidence but simultaneously increase systemic fragility. Drawing on the author’s doctoral research into information usage by investors and their relations with financial reporters2 (Thompson, 2010b), the chapter analyses the links between feedback loops and crises to show how different financial media perform different functions and information flows among traders, analysts, and journalists may be implicated in the recent credit crunch. However, this requires a revision of the orthodox economic assumption that information efficiently moves prices to their correct level in line with fundamentals (Fama, 1970). Rather, financial information actively shapes the market events it ostensibly describes and, as George Soros (1994) recognized, price movements feed back reflexively into the market expectations that underpin asset values.
