Lehman Brothers in the News as Fear of Systemic Collapse Index

(Photo by Mark Lennihan/Associated Press)

Three years ago Lehman Brothers investment bank filled for bankruptcy protection, the largest in US history and worldwide. This unprecedented business failure was the main souce of the consequent liquidity crunch in the banking sector that expanded quickly to all markets.

September 15 2008 is marked as a key date in the financial and economic crisis emerging in year 2007, exploding in 2008, punishing the economies in 2009 and preparing the current 2011 sovereign debt crisis.

Thus, Lehman Brothers has become the epitome of the current depression? situation.

Referring to Lehman Brothers three years after it disappeared is now normally a style resouce to talk about systemic risks, system collapse, to-big-to-fail debates: all serious economic things.

Identifying epitome terms allows to investigate how media behaves when explaining posterious events apparently related with. We showed for instance in a precedent post to which extent media was using references to Chernobil disaster at the initial stages of Fukushima nuclear accident. Now Fukushima is the epitome term for nuclear disasters and will be the tool for examining how seriously are perceived by the media future nuclear incidents.

So, using techniques and measurements by Media, Reputation and Intangible center Universidad de Navarra, we can monitor the time evolution of the media references to Lehman Brothers.

Based on precedent media analysis results, we claim that time evolution of Lehman in the news is a good index for gauging how global media considers the serisousness of the economic crisis since 2009.

We take as value 100 the average media impact of Lehman Brothers during year 2007, by number of news published worldwide.

First figure shows the media impact index of Lehman Brothers bewteen 2007 and September 2011. Values are three-months moving average.

The series takes a peak of some 1200 points by last quater of year 2008, corresponding to the bankruptcy period. This is evidently a dramatic increase of media impact, in line with the extraordinary importance of the investment bank failure. Media impact dropped to values between 200-300 in the coming quarters.

Next figure concentrates in 2009-2011 values. This correspond to post-bankruptcy period. We understand that the values after 2008 reflect mainly the use of Lehamn Brothers mentions in the news as journalistic resource for presenting a dark picture of the economic or financial situation. News directly related to Lehman business are mainly located in the last quarter of year 2008.

From our data we find that references to Lehman tended to decrease during 2009, except for last quarter, as many news were published around the first anniversary of the financial catastrophe.

There was a relative low of 120 points by the first quarter of year 2010. Then the index increased sharply during the second semester, corresponding to rescue to Greece and Ireland.

Tensions decreased after second quarter 2010, with the Fear Index below the value of 150 till second quarter 2011. From this point, the index has increased constantly. Right now the Index reaches a value of 370 points: this is a new maximum since the last quarter of year 2008 in teh aftermath of the bankruptcy.

If our underlying assumptions are correct, the tool we propose is telling us that we are currently experiencing serious fears that the unsolved current sovereign debt crisis in Europe may lead the global economy to a systemic collapse. At least now more than half year ago.

Even if this index related only with sentiments and not with facts, it would probably still be relevant: depression sentiments and are arguably driving many recent events in the bond and stock markets.

Many readers would consider that using media appearences of a specific term as a way to monitor or establish relationship with “serious things” like the economic sentiment is not only bizarre but also stupid.

As we at MRI we have analyzed the actual relation between media coverage and related “hardware” issues, we are of course less skeptical. Some others before us found out a stricking relationship between media behaviour and economic facts. For people interested in media analysis is probably well know the astonishing results generated by The Economist with their “Recession Index”, or R-Index: they discovered that it was a strong relationship between the intensity of the ise of “recession” in news and actual business cycle. The nice thing is that this relationship came before and earliers than the economic models identified and announced it. See for instance data about year 2008, 1999,