Last week the BBC's economics correspondent, Evan Davis, began a three-part look at the crisis in the financial markets, called "The City uncovered". The first episode dealt with the banking sector, and by focusing on the related but very different experiences of Northern Rock and Lehman Brothers, did a very creditable job of explaining the whole mess. There was the usual amount of pointless gallivanting about (Davis popped up in Venice, New York, London, Newcastle etc) but that seems to be par for the course these days, and the visuals never detracted from the analysis.
Last night's episode was called "Tricks with risk". It was trailed as being mainly about hedge funds, but turned out to be mostly about insurance, specifically AIG. Not that you'd have guessed it from the first five minutes of the show, which featured Davis in his motorbike leathers taking an advanced riding course. The lesson? That there are ways to get more comfortable with risk taking, apparently. Motorbike lessons, complex hedging strategies, same difference.
Davis and his trusty iron steed showed up at regular intervals throughout the show, without adding anything to our understanding. There was another leitmotif as well. To illustrate the point that much of the math used in finance is similar to that used in rocket science, the Black-Scholes option pricing model regularly appeared out of an aircraft contrail.
This kind of gimmickry is usually evidence that the presenter doesn't have much to say, or even worse doesn't entirely understand what he's saying. I'm not sure which was the case here, but either way this show was much weaker than the first one. At no point did Davis explain to his lay audience why "derivatives" are so called. Almost all of the explanation of derivatives was focused on options, but when it came time to explain what went wrong at AIG, it turned out that the problem had been with credit default swaps -- yet there had been no mention of swaps of any kind until that point.
It wasn't a dead loss by any means. The hedge fund guys, when they did appear, were true to type -- smooth and venal. There was a young "derivatives consultant" who made a couple of excellent points. We were introduced to Nicholas Taleb, whose "black swans" theory is now the accepted explanation for why the financial excesses of the past decade went so disastrously wrong. And we got to see Davis in some more nice places -- Boston, Chicago, even Galway, where he interviewed Nick Leeson. Still, it could have been so much better, and as it's unlikely that the BBC will ante up for another series on the topic, it's a real shame that it wasn't.
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