Seeking Alpha is perhaps the largest financial blog/blog aggregator around. And for at least a week now, one of their “most popular” posts has been The Scariest Chart Ever. Take a look. Then come back here.
The chart itself isn’t very scary. It shows that the amount borrowed by banks from the Federal Reserve – “Borrowings of Depository Institutions from the Federal Reserve” – has spiked from a trivial level (a few billion dollars) to several hundred billion. It sat at a trivial level because, in ordinary times, there is no reason for a bank to borrow at the discount window when it can borrow instead from another bank at a lower rate (since the Fed funds rate is usually lower than the discount rate). It has spiked up recently as a symptom of the credit crisis; basically, what the chart shows is that the Fed is doing its job of providing liquidity in a crisis.
What’s scary is that the author of the post claims that the chart shows “federal borrowing,” called it “the scariest chart ever,” and concluded, “Anyone still think there are not some rough patches down the road?” . . . and then this became the most popular post on the most popular financial blog in the world. And even though a few people (including me) tried to point out the basic error, the vast majority of the comments pile on to the idea that this chart shows a huge spike in government borrowing.
This is scary (actually, depressing might be a better word) for those of us who think that blogs (and the Internet in general) can serve a valuable purpose in disseminating useful information and allowing constructive discussion. It also points to the importance of financial education, although maybe this example is more about basic verbal education (read the title of the chart) and numerical education (read the numbers on the Y axis: if the chart says that government borrowing was a few billion dollars as recently as 2007, then there’s something wrong).
Update: I should point out that in general I think Seeking Alpha provides a useful service by aggregating information from a wide variety of blogs and using community techniques to filter through them. Among other things, they republish some articles that Simon and I write here. This example just shows that sometimes the community filtering technique produces weird results.