Joseph Weisenthal

First, financial journalists failed to grasp the significance of the failure to regulate over-the-counter derivatives that formed the bulk of counterparty risk in the explosion of credit following the dotcom bubble. Alan Greenspan was opposed to such regulation, but how many commentators took the former Fed chairman to task and warned of the risks? For the most part, journalists were too enamoured with the prevailing tide of deregulation.

Second, journalists, with a few notable exceptions, failed to understand the risks posed by the implicit state guarantees enjoyed by Fannie Mae and Freddie Mac, the mortgage finance giants. Here, we should tip our hats to the now much-maligned Mr Greenspan. He raised alarms early about the risks. Of course, it was hard for journalists to attack the ideal of broader home ownership in America, but that is no excuse.

Third, journalists failed to grasp the significance of the growth in off-balance sheet financing by the banks, its relationship with the pro-cyclical Basle II rules on capital ratios, and the overall concept of leverage. How many news organisations reported on the crucial Securities and Exchange Commission decision in 2004 to loosen its regulations on leverage? The explosive growth of structured investment vehicles at the height of the credit boom was also woefully under-reported.

Fourth, financial journalists were too slow to grasp that a crash in the banking system would have a profoundly damaging impact on the real economy. The same applies to regulators and economists. For too long, too many experts treated the financial sector and the wider economy as parallel universes. This was fundamentally wrong.