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.
The Baseline Scenario 
Blogs can be extremely informative and helpful (like this one) and they can also be enormously ignorant. We (the non-experts) can only truly tell the difference if we allow our preconceptions to be challenged and then evaluate on information quantity and quality.
That site is one of the worst. Very few of the bloggers know what they’re talking about especially when it comes to the financial sector. One guy recently tried to correlate CRA exam results with trends in lending. Look, he said, everyone’s average. I’m hoping he didn’t rate himself that high.
Don’t be too discouraged. I would never have found this blog if I hadn’t stumbled on one of Simon’s posts listed as an Editor’s Pick at Seeking Alpha.
As far as “The Scariest Chart Ever”, I’m not surprised to see it’s still one of the most popular posts. People are scared and that chart just confirms their fears — bank borrowing, fed lending, it’s all the same, right?
I think some of the best criticisms have come from Felix Salmon. That site is like a third-world factory, emitting out nothing but toxic waste. I have hardly found SA to be useful
Go ahead, pat yourselves on the back and pick on a straw man. That’s definitely par for this blog.
Does the money the Federal Reserve lends come from deposits? If so then it is like normal interbank lending?
If not is this money is just created by the fed then does it not increase the money supply? If the supply of money increases without an increase in the value of the economy are you not just diluting the value of currently held money?
James, thanks for the heads up on the misleading caption for the charts on that post. We’ve corrected it and added an editor’s note.
I don’t participate in the blog universer very deeply – but I do write commentary for FastCompany.com amoung others and still run a small mortgage company. Mostly opinon posts but thought you or some of your readers might enjoy. Here is one post called “Generation Mortgage, GenM” …http://mortgagecocktail.com/?p=162. Thanks
SA is a veritable hack-fest
Well here’s a link of a post of the Scariest Graffiti Ever:
http://bigotblog.wordpress.com/2008/09/23/the-scariest-graffiti-i-have-ever-seen/
Cheers,
Sid.
I think you have to be extremely selective on SA – it is far too easy for one to publish an article on their site. TH made a very good point about testing one’s opinion, and using forums like SA to separate the enlightened opinion from “animal spirits”. Anyone who is thankful for the analysis in two charts and two sentences probably suffers from mild ADD, and probably watches Cramer for their daily dose of “real” analysis.
I for one am thankful they (SA) are there. The opportunity to compare various bloggers on one forum is quite a service to the community. It is also great in weeding out chaff like Todd Sullivan (who wrote the offending article).