Who is spooking whom?

Tina Brown's new news Web site The Daily Beast asks the question: is the media spooking the market? The article offers examples ranging from Jim Cramer to the outdated story on United Airlines that each are correlated "panic" among investors. Is the media to blame? I don't think so.

Rather, the media and investors are themselves spooked by bank CEOs, the President, Bernake and Paulson, none of whom effectively have explained the roots, extent and, most important, remedy for the financial crisis. In this vacuum bad news sounds worse than it is and pessimism is unchecked. But don't blame the media.

It is this same lack of leadership and demonstrable solutions that leads to ineffective half-measures like the ban on short selling. It is questionable whether the ban fulfilled its intention, given the freefall we've seen in the markets this week. However, the real solutions were not forthcoming and regulators had plenty of political cover for sticking it to the hedge fund industry. (The industry's anemic efforts to head off the short selling ban is best discussed in a separate entry.)

For the record, as early as 2005, reporters at The Wall Street Journal were asking my clients about the state of the mortgage market, risks of subprime lending, and risk management practices in mortgage lending. The media was right, it was everyone else who had their heads in the sand.