Does Freedom of Speech Lose You Money?

China has passed legislation dictating that only journalists with experience or qualifications in the business sector may write about stock and futures exchanges, Zinhua reports.

Now, in a democracy such a law would not really be possible nor, I should add, desirable. After all, freedom of speech is what allows each of us to write about whatever we want – and it’s up to the readers to make up their mind if they believe us or not.

But what about when those readers are traders who are making or losing millions of euros (dollars, yen, whatever free currency – not yuan, obviously, as that’s still tightly controlled) based on what’s written in the press and on the internet?

The Swiss Knife

Case in point: Portugal debt got hammered on Friday and the euro got hit by news reports that the Swiss National Bank had excluded Portuguese debt as collateral eligible for repos. 

The context of that story is that on Wednesday the Swiss National Bank confirmed it excluded Irish sovereign debt from the list of instruments it accepts as collateral for its repo operations.

(With repos, banks in need of cash can sell securities to the Swiss National Bank, committing to buy them back at a specific time for a higher price. By excluding Irish debt from the list of selected instruments for such operations, the SNB effectively reduced availability of cash to banks with high exposure to Ireland.)

The Irish news was first reported by an Irish blogger on January 4 but the exclusion actually happened in December 2010, when the SNB published the adjustments it made to the basket of instruments it accepts as collateral.

Portugal Shoots Itself in the Foot

On Friday, riding on the success this story had in spooking markets, Lisbon newspapers apparently reported that Portuguese debt had also been excluded by the SNB from its list of eligible collateral for repos. This scary piece of news was quickly re-printed by other media.

What few media reported, though, is something they could have found out by making a phone call to the SNB: a spokesperson told the few curious hacks who called that the Swiss central bank had stopped accepting Portuguese debt as collateral more than a year ago, because it no longer fulfilled the rating criteria.

If more journalists had made that call, this scary story would have looked totally different, with a headline saying something like “Old News: SNB Doesn’t Like Portugal’s Debt Either.” 

Swiss Precision?

But wait, it gets even better. It’s not just the journalists who sent out confused messages, it’s the central bank itself, apparently.

If initially it said it hasn’t accepted Portuguese debt as collateral for over a year because of ratings downgrades, later the SNB sent out a statement in which, according to Reuters, it said it actually never accepted it because of settlement issues.

Do we need a law like China’s in Europe? I don’t think so, seeing as we claim to be a democracy. But we do need authorities who promptly put out the correct message for markets. 

Oh, and journalists who think at least twice about the consequences of the stories they write – and about their accuracy, since they’re at it.