There an old saw in journalism: You’re only as good as your sources, and journalists’ sources were pretty confined. Where were [the warnings of] mainstream economists during this boom? Almost nowhere to be found. Where were, of course, the Wall Street economists in this crisis? For the most part, not unanimously, but for the most part justifying their existence. But, finally, in the end it is the journalists’ responsibility and the editors responsibility to get the story right.
Hagiography is my last point. There has long been a tendency to raise these people like [indicted ex-Bear Stearns executive Ralph] Cioffi… on a pedestal and idolize them. It became a contest. In 2002, someone called Bear Stearns the most admired securities firm in America. There is this contest time and again to [engage in] hagiography with our business people, and I think it’s had pretty bad results.
Dean Starkman is managing editor of The Audit, an online critique of financial journalism of the Columbia Journalism Review, and the author of “Power Problem,” a critique of business coverage in the runup to the meltdown:
The subhead of the piece was, “The business press did everything but take on the institutions that brought down the financial system.” I’ll save you reading 6,400 words. What was lacking was, for want of a better word, muckraking reporting.
But I wanted to dwell actually on the successes. What struck me when I was doing this piece, one, is that journalism is actually a lot more effective than you think, and two, what a crude and blunt instrument it actually is.
You [don’t want to] be too subtle about it—This is the lesson I’m learning. Because time after time when the press went after the brand name, by name, with a full-on, straightforward probe of their lending activity or where the money was coming from, change happened. Reform happened. It happened enough that it became apparent that, well, it was too bad it didn’t happen more often. The example that comes to mind was a 2000 story by Diana Henriques and Lowell Bergman in the New York Times about a now-closed outfit called First Alliance, which was then a big notorious lender out in California backed by Lehman Brothers. They did a long story on both the predatory practices of this company and where the money came from—in this case Lehman. And by God, First Alliance closed within weeks of that story and was the subject of successful private litigation that was ultimately upheld in the appeals court.
The Times and [The Wall Street] Journal did excellent work on another now-defunct dinosaur called Associates First Capital, a notorious outfit back then, and same thing happened—the Federal Trade Commission hit the successor company, an outfit called Citigroup you may have heard of, with a record fine. Forbes did wonderful work on Household Finance, now HSBC, and state attorneys general hit them with an even larger fine, $484 million—a [new] record. Last one was one the L.A Times did, in part by a fellow in the audience, Mike Hudson, who did some freelance work for the L.A. Times. And these were scathing probes of Ameriquest’s lending practices. This was in 2005 and, by golly, in 2006, they were hit with a $325 million fine, and the next year they were closed. I’m an old investigator, so to me the lesson is fairly clear. You really have to go straight at these institutions. And the maddening part of reading back over all this coverage was that just as subprime lending was really taking off, in 2003, when it [began to] hit levels we’ve never seen before and hopefully never will see again, and securitization was doing the same, the business press’s investigative capacity went into hibernation. And I don’t think it’s an accident that we are where we are today. That was my big lesson.