Wednesday, September 7, 2011

Irresponsible Alarmist Data Analysis at the NYT

The New York Times has the graphic above as the quantitative support for an article about European Banking with this lede:
Remember the collapse of Lehman Brothers? Europeans certainly do.

As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008.

European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing.

But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations.

American financial institutions, seeking to inoculate themselves from the growing risks, are increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts — moves that could exacerbate the funding problems of European banks.
Notice the leftmost panel of the graphic above with the Libor-OIS spread increasing sharply in the last two and a bit months:

I was suspicious of the choice to look at only such a short period of data so I went to Bloomberg and looked at the last three years' worth:

That rise in the last couple of months doesn't look so big now does it?  Not only is it miniscule compared to 2008 but it hasn't even reached the levels of July 2010.

So it seems the New York Times intentionally cherry picked a very short section of the data to create an alarming impression and support a comparison to the events of 2008 with the Lehmann bankruptcy.  On the strength of the evidence so far, there is no comparison.

1 comment:

yvesT said...

Is this part of an act of war from America on Europe or what ? ;)

Nice catch anyway, impressive ! :)