Financial entities struggle to connect dots

Why are real-estate woes affecting the entire US market? A clear answer is eluding everyone

Why are real-estate woes affecting the entire US market? A clear answer is eluding everyone

As the stock market continues to remain highly volatile, and the mortgage and real-estate industries continue their steady decline, reading the newspaper or watching the news is probably not an enjoyable exercise for many.

The fact that financial industry experts feel that even the organizations behind recent financial machinations are unable to fully explain what is happening to the market makes for a very difficult communications challenge.

Explaining the underlying cause of this volatility is the easy part. Mortgage companies were handing out low adjustable-rate-interest loans to consumers who, now that those adjustable rates have gone up, can no longer afford their mortgages. But trying to explain why this has had such a negative rippling affect on the country's entire financial system seems to be the challenge for the industry.

"That has yet to be successfully articulated and it may never be, and I can't say that I have read that explanation anywhere yet," says Gregory Pettit, SVP of financial communications at Hill & Knowlton. He believes that the media covering the industry along with people inside the industry can't comprehend all of it.

"The instruments that were used to chop up and securitize these mortgages and the debt associated with it are so esoteric and complex that a lot of media that cover that sector don't fully understand it," Pettit adds. "And a lot of the institutions that bought up those securities don't even understand those securities."

Add to that the fact that the tone of the financial industry news recently has seemed mostly negative, and you have the ingredients for creating a very perplexed and scared audience.

Jim Cramer of CNBC's Mad Money, who is the beacon of information for many novice investors, hasn't helped to calm investors. He recently erupted into a shouting frenzy claiming Federal Reserve chairman Ben Bernanke had no clue how bad the situation was, that he needed to cut the interest rate, and that the current fixed-interest mortgage situation was in Armageddon.

But Pettit says that the coverage has not been too overblown.

"For a change, I don't think the media has been overly alarmist [reacting to] the actions of the Federal Reserve, [which] indicated last week there have been some serious imbalances," Pettit says. "You're used to hearing the storm of the century every 10 minutes [in these situations]. I don't think it's necessarily unfolded with the media that way this time around."

Dan Simon, MD at Cognito, says that while the coverage is mostly balanced, there is some, coming primarily from blogs, that tends to be a bit "loaded."

"One of the things that differentiate this period of volatility from previous eras is the dramatic growth, popularity, and legitimization of the blogosphere," Simon says, "and the clear effect that [it] is having on the media environment. They tend to feed into one another."

He says that when it comes to the financial industry, unedited bloggers can sow a lot of panic by immediately assigning blame in these situations.

"More often than not these unregulated media are leading the way in either praising or criticizing individuals or firms in the financial market," Simon says.

That's not to say that the traditional media is holding a rush to judgment. BusinessWeek ran an article blaming home builders, and Time recently blamed Wall Street for the real-estate industry's troubles.

"The media and everybody is going through an exercise of assigning blame and deciding what we need to do to correct it going forward," Pettit says. "And I don't see that fully played out yet."

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