Making fun of Congress is a long-standing American tradition for comedians. Serious investors need something better.
Media coverage of important government events often lacks those with the relevant expertise. Yesterday's Dimon hearing is a good example. There were no experts on Congress. It is like covering a cricket match using baseball announcers.
When this happens, investors do not get an accurate picture. While I am using the Dimon hearing for today's example, the same principle applies to several issues important to investors:
- Last year's debt ceiling debate, which played out exactly as expected;
- The ongoing multi-party negotiation in Europe; and
- The "fiscal cliff" faced by the US at the end of 2012.
The mistake comes when these are treated simply as "business stories" expected to follow business norms, instead of political processes where the participants are accountable to voters.
I'll explore the Dimon example below, but let us first enjoy some real humor about Congress.
Will Rogers --
A fool and his money are soon elected.
Ancient Rome declined because it had a Senate, now what's going to happen to us with both a House and a Senate?
"How much do you think Senators make? They now make $154,700 a year. But they say it will stimulate the economy because eventually that money will trickle down to the liquor stores, the hookers, the brothels ... then it will get back in the community." -Jay Leno, on Congress voting itself a pay raise.
Click through to the links for many more good jokes.
The Dimon Hearings
The financial news coverage focused on JPMorgan Chase's CEO Jamie Dimon's long-awaited testimony before the Senate Banking Committee. Most of the coverage you saw on television or will read today is terrible. There are two simple reasons:
- They did not seek out the opinion of any experts on Congress. How silly! Why not have someone explain what was going on? Who the players were? Their constituencies?
- The financial pundits imposed their own viewpoints on what should have happened. They are showing off instead of helping investors understand the proceedings. This was not an event for a business audience, but for the entire world.
I'll turn to specifics below, but it is useful to do a little background.
The Job of Pundits on CNBC
CNBC does not reveal how pundits are chosen for their various programs. In our office we usually mute, but listen to Josh, Carter, Barry, Paul, and a few others on FastMoney. Tonight we happened to have the sound on to hear the offensive segment.
I'm just going to speculate that the show wants to drive ratings in a particular demographic. Participants are encouraged to be controversial and cater to that audience. Part of the gig is to be a smart aleck and an expert on everything.
I have worked at hedge funds and with many traders. There is a big payoff for fast decisions that you can later change in a heartbeat. You get paid for short-term moves, being an expert on everything. Your knowledge is an inch thick and a mile wide.
That is a job description that few could match, explaining the narrow ranks of successful hedge fund managers.
It is almost exactly the opposite of the job of legislator. This may explain why TV trader/pundits are so poor when it comes to analyzing public policy.
The Job of Senators
The Senate reveals how members are chosen: by election. There are many books on Congressional behavior, none of which have been read by the pontificating pundits.
Congressional hearings are supposed to be the foundation for potential legislation. In fact, there are many purposes. Sometimes it is a symbolic move to show the public that a controversial topic is under scrutiny. Often this means nothing, but sometimes it is as important as Watergate.
Hearings also provide a forum for those participating. If the participants at FastMoney would try to think about the problem from the perspective of the Senator, they would have a better answer.
Many Senators (or Congressmen at House hearings) are doing the political equivalent of "talking their book." No one they care about is watching live. Instead, they might get a few seconds on the nightly news in their area, so they go for the money shot.
This is a normal reaction to the job. In the Dimon hearings it meant that supportive Senators were looking for a friendly response. Critics were trying to show how tough they were. Meanwhile, there was some actual questioning related to the key issues.
Why You Should Care
This failure of the financial media -- CNBC and FastMoney, but others as well -- is expensive for the average investor. The problem is that most people listen to these pundits every day without realizing that they are totally ignorant when it comes to public policy.
Since policy decisions are the most important factors in Europe and facing the "fiscal cliff" we should be looking for genuine experts. Instead we have hedge fund smarties.
Karen Finerman's Gaffe
In the segment below, please scroll to Karen Finerman's comment about the Committee, starting at about 4:30.
Several points are obvious:
- Finerman knows nothing about Congressional hearings, despite many past examples on CNBC. The hearings always start with the Chair, who makes comments and asks questions before turning to the ranking Minority member and allocating time. Always.
- Finerman was clueless about the Senate Banking Committee and Chairman Tim Johnson's rebound from a serious stroke. (references below). Anyone who did homework should have known about this. It was background in every news article. Finerman talked without research.
- Finerman mistakenly thought that it was all about her! Get real. The Banking Committee does not care about her opinion. They are not addressing hedge fund managers or CNBC. They are aimed at the general public.
- Finerman is completely insensitive. Anyone watching the hearing could see that Sen. Johnson had a handicap. Piling on is offensive. How can someone on the Michael J. Fox Foundation Board be so clueless and insensitive as she was?
Anyone who wants to understand about the remarkable story of Sen. Johnson, his illness, his praise from President Bush and his colleagues, and his recent effectiveness can read about it here.
Here at "A Dash" we are interested in investment results. I postponed some other agenda items about Europe because this was breaking news and immediately relevant to the average investor, people I talk with every day. They watch TV and read articles that are ill-informed about political leadership. The result costs them on two fronts:
- They underestimate the skill and ability of leaders in Europe to reach a negotiated solution.
- They underestimate the potential for the US political process to avoid the "fiscal cliff."
Elected leaders are expected to take responsibility for their statements and actions. CNBC should do the same. They give endless time to mistakes by Gov. Romney and Pres. Obama. How about an apology from Finerman and Fast Money?
Disclosure: I am long JPM.