To understand the Internet, watch how rumors spread. Too many people evaluate stories by how well they match their preconceptions. Since few “nodes” on the Internet bother to check sources — or even care about sources — the Internet often makes us dumber. Today we examine a rumor spreading like wildfire on the Internet, on a subject of vital importance to America. A rumor with no visible basis in fact. But probably to be frequently cited as fact for many months, until eventually forgotten.
(1) The first story: “China Dumps US Asset Backeds and Corporates“, David Goldman, Asia Times, 9 February 2010 — Full text:
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take – Beijing does not mix investment and strategic policy – and would be hard to substantiate in any event.
Glenn Reynolds (the The Instapundit), apostle of good news for Bush — vacuum for bad news under Obama, circulates this by saying “HMM: China Dumps US Asset Backeds and Corporates.” Will he run a correction if this is shown to be false. Or will this be just another bit of fiction clouding the mind of his readers? {see his reply here}
About David Goldman: he was global head of debt research for Banc of America Securities and earlier global head of credit strategy at Credit Suisse. He was until July 2008 the strategist for a credit hedge fund, Asteri Capital, one of the few credit funds to show a profit between July 2007 and July 2008. He is now Associate Editor of First Things and a columnist (under the byline “Spengler”) for Asia Times Online. I consider him a provocative writer and one of our few original thinkers. But not a reliable source for this kind of information.
(2) The rumor spreads to more respected media: “China’s punishment, Treasuries’ pain“, blog of the Financial Times, 10 February 2010:
The European FX analysts at BNP Paribas seem to have confirmed the SAFE report:
“Dollar-denominated risk assets, including asset- backed securities and corporate, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest themselves of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events. Meanwhile, the Chinese military has urged the government to sell US bonds, boosting defence spending on Taiwan arms deal. Hence, we watch US spreads intensively. A widening of spreads would not bold well for share markets while putting economic recovery at risk. It was US liquidity feeding financial markets until January this year. Hence a decline of risk appetite suggests repatriation flows moving back into the USD.”
(3) The story hits the mass media: “China orders retreat from risky assets“, Ambrose Evans-Pritchard, Daily Telegraph, 10 February 2010 — Excerpt:
“China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets. … A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington’s implicit backing.”
For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar, including About the FM website page. Of esp relevance to this topic:
Afterword
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
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Response by Glenn Reyonlds (the Instapundit):
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So wait, I link something that’s later confirmed in the Financial Times, and that’s evidence of how bogus rumors travel on the Internet? Seems to me you’re proving your own point about low standards, but not in the way you intend.
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FM reply: Thank you for responding. By the numbers…
(1) “I link something that’s later confirmed in the Financial Times”
It was reported in the Financial Times. Mainstream newspapers report many rumors (see my post about the great but imaginary naval armada that sailed to Iran in August 2008). Whether today’s rumor is correct or not remains to be seen.
(2) “evidence of how bogus rumors travel on the Internet”
I said it was a rumor, not a “bogus rumor.” It might prove to be correct. Or not.
(3) “you’re proving your own point about low standards”
Of course there is nothing wrong with circulating rumors (although the media does a poor job of labeling them, as seen in this example). I asked if you’d post a correction should it prove to be false? False stories pollute our thought processes, since retractions seldom catch up to the rumor. For example, references still circulate to Fisk’s story about a conspiracy to wreck the US dollar (6 October 2009).
Also: the only critical thing I said about your website was “apostle of good news for Bush — vacuum for bad news under Obama.” Do you agree? If not, I can show quite a bit of evidence.
I stopped listening to Spengler after he said that Bill Ayers wrote Obama’s book.
FM claimed the rumor had “no visible basis in fact” (note the hedge “visible”) and then that , as rumor, it
will be{is} “probably to be … eventually forgotten”. then admits in the comments that it might prove to be correct.Certainly a bizarre post from FM. I suggest waiting to comment until all facts are properly verified.
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FM reply: I fixed your misquotation (adding the words in bold), which trashes your comment. I will explain for the young students reading this:
** Rumors with no visible basis in fact
** usually (but not always) prove to be false,
** so we can say that they probably will be forgotten.
Certainly a bizarre comment from KFofB. I suggest reading the post more carefully before posting a comment.
“note the hedge ‘visible'”
It’s not a hedge, it is a statement of fact. There is often non-public information, which is why evaluating rumors must always be tentative.
I think that a wash of news, good and bad, from various sources, unverified as of yet, or never to be, or to be someday, is better than having 4 and a half channels and 3 papers. The web enables people to report news or spread rumors. Its all good in the end in my opinion. Having no rules keeps many people suspicious and diligent and I think more people will become more diligent. And in the battle for news and ideas I think sensationalist stuff are the hares while the real serious news are like the tortoises.
Perhaps it’s a minor quibble, but I think this is blaming a medium for a problem with the audience/presenter. More correctly, I believe it’s the 24/7 news cycle that leads to this sort of reporting. The Internet is just a means of delivering junk journalism, along with TV, etc. The one remaining value I see in print newspapers is that they are forced to have more time to investigate stories before they end up in front of consumers.
President Obama, Bernanke, and Jim Cramer are in a MOVIE about hedge funds called “Stock Shock.” Even though the movie mostly focuses on Sirius XM stock being naked-short-sold to near bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and reveals some of their secrets. DVD is everywhere but cheaper at http://www.stockshockmovie.com
FM actually wrote: “A rumor with no visible basis in fact. But probably to be frequently cited as fact for many months, until eventually forgotten.”
I will ignore the fact that the last utterance is not even a complete sentence. Unfortuneately for you and submission, the word “probably” only refers to the rumor being “frequently cited”, and not to the remainder of the clause.
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FM reply: I suspect that almost everybody reading that sentence correctly understood my meaning. You must be a busy person applying such a level of grammer editing to Internet posts. You could work full-time on just Matthew Yglesias’ articles, and he’s paid to write them.
“I will ignore the fact that the last utterance is not even a complete sentence.”
How nice of you. I’m a pedant too, at times, but this is really over the top. Funnier than anything I’ve deliberately written as humor. Before you hire an agent, please note that this is (unfortunately) a low bar.
FM wrote: “You must be a busy person applying such a level of grammer editing to Internet posts. You could work full-time on just Matthew Yglesias’ articles, and he’s paid to write them.” … “How nice of you. I’m a pedant too, at times, but this is really over the top.”
You took this approach to me in post #3. I therefore assumed that this approach would somehow speak to you. I’m satisfied that it did.
If you were to be shown this referenced party directive, would you then question the authenticity of the document? I think that would be legitimate, but then the question surrounds the standards of authentication.
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FM reply: These two instances are in no way comparable.
* Your quotation omitted a key modifier, which substantially changed the meaning of the sentence.
* Your trivial grammer corrections (“not a complete sentence”) are absurd. Few people write internet posts at that level. Hence my reference to a professional journalist like Yglesias, paid to write his blog — whose posts are notorious for their bad grammar, frequent misspellings, and malapropisms.
(2) “If you were to be shown this referenced party directive, would you then question the authenticity of the document”
That’s a total non sequitur (in the casual sense). If there was a document then it would not be a rumor, a story citing no evidence.
(3) “this approach would somehow speak to you. I’m satisfied that it did.”
That’s a low bar to jump. I respond to most comments. Even silly ones like this.
FM wrote: “Your trivial grammer corrections…” -Again, it is “grammar”.
KFofB wrote: “If you were to be shown this referenced party directive, would you then question the authenticity of the document?” -Actually, FM, this is a simple and direct question that stands on its own. If you don’t want to be shown the errors in your construction, FM, then you should refrain from making your entire point hinge on equivocality.
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FM reply: My reply was specific, your question was silly. If there was such a document (“referenced party directive”), the story would no longer be a rumor — which was the basis of the post. Since I have not seen any such document, I cannot say if I would question its authenticity. Since it would be in Chinese, I’d probably have to rely on the source providing the document — or some other form of expert authentication.
More generally … as the hoaxes about the Majestic-12 and Killian documents show, producing documents is a stage in the verification process. Not its end.
None of this quibbling shows “any error in my constuction.”
FM wrote: ” If there was such a document (“referenced party directive”), the story would no longer be a rumor ”
uh thanks, we all get that. I’m asking about what the burden of proof is for you. It appears to be a fully authenticated document by someone you deem to be qualified and trustworthy.