As of July 16, 2010, the end of this story has been updated with new information about Paul Bishop’s wrongful termination hearing.

In March 2008, Herb and Marion Sandler sat down with Joe Nocera of The New York Times to explain the creation of ProPublica, an investigative journalism startup launched with $10 million of their money and the promise of more. Journalists weren’t doing enough investigative work that mattered, they felt; work with moral force.

The Sandlers are in their late seventies, billionaires who built an Oakland, California, bank, Golden West Financial Corporation, into a respected institution with 285 branches operating under the name World Savings Bank. Over the years they earned a reputation for criticizing the banking industry’s risky and predatory practices. And when they sold Golden West to Wachovia Corporation in 2006, they took the better part of $2.4 billion and embraced a muscular brand of philanthropy full-time. Supporting serious journalism, they believed, was in keeping with their support for organizations like Oceana, Human Rights Watch, and The Center for Responsible Lending. The journalism would highlight, and maybe rectify, injustice. “It starts with outrage,” Herb Sandler told Nocera. “You go a little crazy when power takes advantage of those without power.”

Two years after ProPublica’s launch, the Sandlers seem happy with the freestanding newsroom. Under Paul Steiger, a former editor of The Wall Street Journal, it has collaborated with some top news outlets and brought researched exposés to an array of smaller ones. Its work has spurred an overhaul of California’s nurse-disciplinary system, heightened the sense of the risk that natural gas hydrofracking poses to America’s water supply (which won a Polk Award), and raised red flags over the dire straits of unemployment insurance funds nationwide.

The Sandlers’ relationship with the rest of journalism has not fared as well. After decades of depictions of the couple as meticulous lenders, consumer advocates, and a lovable husband-and-wife team, the Sandlers’ reputation was recast during the financial crisis. In the 1980s, their bank popularized the “Pick-a-Pay” loan, a subtype of the option adjustable-rate mortgage (option ARM) that would later be blamed for some of the housing boom’s excesses—largely because they allowed borrowers to temporarily make payments that do not cover even the interest on the loan, meaning later payments must rise sharply. Worse, the Sandlers were accused of lowering their underwriting standards to juice loan volume, then pocketing billions by foisting the toxic mess on Wachovia—an acquisition that poisoned America’s fourth-largest bank.

In The New York Times, the Sandlers’ option ARM loans were the “Typhoid Mary” of the housing crisis. 60 Minutes featured a whistleblower who accused them of “sitting on an Enron.” To cap it all off, Time included the Sandlers on its list of “People to Blame for the Financial Crisis” at number twelve, right after Lehman Brothers’ Dick Fuld.

The case against the Sandlers appeared cut and dried. It was already a truism that other purveyors of option ARMs had been predatory and reckless; the Sandlers’ Golden West wasn’t being tarred with anything that hadn’t been said of Angelo Mozilo’s Countrywide Financial or Kerry Killinger’s Washington Mutual. Nor was there any doubt that a little over two years after the Sandlers sold their portfolio, Wachovia faced billions of dollars in Pick-a-Pay losses. The Sandlers’ record of support for consumer protections, when noticed at all, was recalled with dark irony.

The couple bitterly protested the stories and by early 2009 began demanding corrections, aided by an attorney. In the case of the Times, the article about them was eventually appended with four corrections—ranging from the removal of the word “pariah” from the headline to a half-point interest-rate error. But the Sandlers wanted more, from the Times and others. And they had a point.

The Sandlers’ Golden West was neck deep in some of the housing market’s most overheated regions. They fought to hold market share, maintaining an uneasy relationship with the increasingly dominant independent mortgage brokerage industry, a constituency Herb Sandler deemed “whores.” And when the crash finally came, the Sandlers were retired and gone, though the portfolio they created and Wachovia expanded suffered terrible losses.

But the media’s insistence on conflating the Sandlers with Countrywide, New Century, Ameriquest, and other notorious lenders—who sold products with short “teaser” periods that would soon explode, made a joke of underwriting standards, and off-loaded their toxic paper into the secondary market—points up the difficulty journalists had understanding the mortgage mania and identifying the truly bad actors. The press lumped the egregious with the unlucky.

Jeff Horwitz is a writer in New York.