My current thinking, subject to change, is that the media did a pretty good job on the housing bubble. We really warned over and over about the housing bubble. I wrote columns about it, Paul Krugman at the Times was writing columns about the housing bubble, The Economist was putting out covers on it. BusinessWeek did stories about aggressive lending practices. The Journal had some coverage of it. So I think that permeated…;

TA: If you didn’t know about the housing bubble, you just weren’t paying attention.

JE: Exactly.

The media did a very good job on (the housing bubble) part of it and a terrible job on the financial end of it—what was driving it on Wall Street. The proliferation of securitized products, the complex collateralized debt obligations and the rise of credit derivatives and the leverage in the system, we just didn’t cover that at all. We were totally overmatched.

What we should have done was just asked very simple, stupid questions about why investment banks were making so much money, why banks were in their most profitable period ever. And if people had written those stories from a skeptical point of view we would have done a much better job of figuring out where the fault lines lay.

Part of being a journalist is asking simple questions that are dumb. You have to be very humble as a journalist because you have to ask stupid questions and have people make fun of you and feel disdain for you.

TA: But how important is expertise in good business journalism? In talking to Jon Weil, I asked about learning to read balance sheets. You can talk to shorts and analysts and things like that, but isn’t that a key skill for somebody reporting on a company to have?

JE: I completely agree with that. The question of expertise is a very interesting one. Jon really knows how to get into the numbers and I admire him for that. I know a lot less about accounting than he does. It matters, but it also matters to get sourced up with people who understand what’s really going on and to have them walk you through things.

I would say my expertise is not in delving into documents that no one has read and finding the one incriminating footnote that explains everything. What I am good at is finding the skeptics and trying to understand their arguments and whether they make sense or not, then going to the other side and really trying to understand their point of view as well, and trying to make a decision about it—having some instincts.

I go back and forth thinking about whether journalists should have expertise in their subject matters or not. Obviously expertise helps but our job at the base of it is to go to these priesthoods and ask basic questions and try to figure out what’s going on. And these priesthoods turn out to be very important for society. Wall Street is this area that cloaks itself in sophistication and complexity, and that’s not an accident. They do that to prevent people from asking questions.

So we needed to ask a lot of simple questions that had complicated answers. The main question was why are these guys making so much money? And it turns out it’s because they’re taking much more risk and they’re much more levered. What did that mean for the financial system? And it turned out that it meant that the financial system was getting more and more fragile.

We did a terrible job of doing that. If you want to fight the last war you have to answer that question, but I think that actually helps us fight the next war, which is when we see profit, always ask why.

TA: How do you figure out who to talk to?

JE: This is the key question for journalists: sourcing. Source development, constantly expanding and culling your Rolodex to get to the people who are the most thoughtful, who will spend the time for you.

One of the things you do when you talk to these people is you honor them by being serious minded about the task. Seriously trying to understand it, so you’re not just calling them for a quote, you’re not just calling them for one conversation but you want to develop a relationship with them over time. And you want to devote yourself to understanding what the issue at hand is, whether it’s the credit-default swap market or a company’s balance sheet.

How you find these people is they’re talking to people in the market too, and they’re talking to ex-employees. You try to find the skeptical longs, you ask them who they’re talking to; constantly ask people you’re talking to who they’re talking to. I think we all know that ex-employees and suppliers and competitors and short sellers can be great sources—and they all have to be treated with enormous skepticism.

That’s why when you talk to these people you want them to show you documents, demonstrate it in the numbers, tell you anecdotes so that other people who were there can verify these things.

TA: One of the criticisms I had this spring after this was clearly unfolding was that the press wasn’t saying what this could become. Now it surprises me is a lot of people think this started in September, and I’m not blaming the press at all for that, but I didn’t get the sense there was enough urgency earlier this year.

JE: I think you go back to last year. Most people date this from the summer (of 2007), roughly from the Bear Stearns hedge-fund problems, but the subprime ones were emerging much earlier. UBS had problems I think in February ‘07.