Financial bloggers beware

The French financial regulator AMF may end up fining two bloggers (one retired French economics professor and one American investment advisor) who might possibly perhaps maybe hypothetically have influenced financial markets in 2011, when they declared that Societe Generale’s leverage was higher than what the bank officially reported.

This would be a dangerous precedent. Bloggers, financial analysts, journalists and other people are here to independently (or not) analyse news, data and information and express an opinion, whether it is right or wrong. The first question that comes out of this is: could only two bloggers influence markets in such a way? It sounds quite unlikely. Markets are formed by millions of individuals, who can (and do) also come up with their own views. When top-ranked analysts at top banks downgrade companies, markets react negatively, but nowhere near what happened to SocGen at that time (the bank’s share price fell 42% within just 20 days).

Moreover, they also have the right to be wrong. If nobody believes them, their opinion won’t matter. In case people do believe them, it might well mean that there is at least some truth in their arguments.

All this once again looks like witch-hunting. No news here. Throughout the crisis, regulators tried to blame hedge funds, speculators, short-selling, rating agencies and other market participants as soon as a country’s credit spread was jumping or the share price of a bank collapsing. A classic case of ‘shoot the messenger’.

The eventual result of this is that information might become scarcer as analysts fear getting sued even if they are actually right. This is evidently the wrong solution. More analyses and opinions the better, as it would reduce the reliance on and impact of a handful of analysts and commentators. We need more competition in financial commentary, not less.

PS: The original links are here and here. The fines are likely to be around EUR10,000. Not too high, but still way too much.

Chart Source: Yahoo Finance