Debits & Credits: Brooks Over His Head

Plus: Bear romanticized; an uncredited Crain's scoop; an overcaffeinated Journal, etc.

A Debit to New York Times columnist David Brooks for his confused piece Tuesday on who’s to blame for the mortgage mess.

Brooks indicts everybody for causing the crisis but thinks only some should be punished—or even, God forbid, regulated.

The mortgage brokers were out of control. Regulators were asleep. Home buyers thought they were entitled to Corian counters and a two-story great room. Everbody from Norwegian town elders to financial geniuses decided that house prices would always go up. This was an episode of mass idiocy.

Easy for Brooks to say, a year and a half after the air started leaking out of the bubble.

Who should get nailed? The “true greedheads… the speculators, the flippers, the people who bought second homes they couldn’t afford.” What about Wall Street and the banks who actually caused the crisis? Surely we could find a greedhead or two lurking about in the financial industry. But Brooks says lay off the greedheads. Heavy, man:

On the other hand, as Douglas Elmendorf of the Brookings Institution points out, it would be self-defeating to crack down on the so-called irresponsible lenders so harshly that you skew their incentives to lend in the future.

“So-called” irresponsible? Brooks points a long finger of shame at you if you bought Corian counters, but the lenders who gave you the money to buy those counters you supposedly can’t afford aren’t even straight-up irresponsible. Nice.

In normal times, the free market works well. But in a crisis like this one, few are willing to let the market find its own equilibrium.

Did he really say that? A free market “works well” in normal times? Does that include the time leading up to the current crisis, when regulation fell by the wayside and unscrupulous financial institutions and bobo homebuyers alike became greedheads? Are markets only “normal” when they’re going up, up, up?

This is what happens to columnists who use their political ideologies to guide them on topics about which they have no clue.

Wall Street-colored glasses

Another Debit to the NYT for its page-one article Monday on the Bear Stearns fire sale/government bailout.

Up high, reporter/editor Andrew Ross Sorkin says Bear Stearns “was driven to the brink of bankruptcy by what amounted to a run on the bank.” And then:

The deal for Bear, done at the behest of the Fed and the Treasury Department, punctuates the stunning downfall of one of Wall Street’s biggest and most storied firms. Bear had weathered the vagaries of the markets for 85 years, surviving the Depression and a dozen recessions only to meet its end in the rapidly unfolding credit crisis now afflicting the American economy.

We’re told nowhere here that Bear is one of those financial institutions that manufactured this credit crisis, which is to say it manufactured its own “stunning downfall.” It was brought down by a “run on the bank” caused by its own actions, not some irrational panic, as the Times implies.

Sorkin can’t help but let a certain admiration for the roguish Bear seep into his copy:

A throwback to a bygone era, Bear Stearns still operated as a cigar-chomping, suspender-wearing culture where taking risks was rewarded. It was a firm that was never considered truly white-shoe, an outsider that defied its mainstream rivals.

When the Federal Reserve helped plan a bailout in 1998 of Long Term Capital Management, the hedge fund, Bear Stearns proudly refused to join the effort.

We appreciate suspender-snappping cigar chompers as much as the next person. But that fun color isn’t balanced by telling us, as Sorkin’s colleague Gretchen Morgenson had a day earlier, that Bear Stearns has a long history on Wall Street as a shady operator.

A serious take on Bear Stearns

We’re not Times-bashing this week; it gets a Credit for a column in the same section on the same day as its A1 Bear story.

Columnist Paul Krugman has a good take on Bear and the coming Big Bailout, making clear he’d read his own paper on Sunday. Friday’s Times metro section also got it right with a nice piece on why New Yorkers should be particularly angry with the institution.

Here’s Krugman:

Bear was a major promoter of the most questionable subprime lenders. It lured customers into two of its own hedge funds that were among the first to go bust in the current crisis…

(Bear is) a bad financial citizen: the last time the Fed tried to contain a financial crisis, after the collapse of Long-Term Capital Management in 1998, Bear refused to participate in the rescue operation.

Ultimately, Krugman sees the bailout as an acceptable outcome of a difficult situation—because of the possible ripple effects of a Bear collapse—but he doesn’t mince words about the institution itself:

Bear, in other words, deserved to be allowed to fail—both on the merits and to teach Wall Street not to expect someone else to clean up its messes.

Too much coffee

Before we return to the financial mayhem, perhaps you would like to take this opportunity to sip a caffeinated beverage. Perhaps… an espresso from Starbucks? A Debit to The Wall Street Journal for its comically poor news judgment last week.

If you read Wednesday afternoon, you would have seen a red-flag BREAKING NEWS alert near the top of the Web site reporting—hold on to your sippy lids!—the following:

Starbucks, in first of announcements from annual meeting today, says it will introduce new machine that will grind coffee for each espresso shot. Full article coming soon.

The paper’s editors were a little saner, or a little less caffeinated, and put the Starbucks news on B5 in Thursday’s paper.

A Crain’s scoop falls in the forest

A Credit to Crain’s New York for breaking the story Thursday afternoon that Sam Zell’s Tribune Co., may sell Newsday, and that Rupert Murdoch was interested. The WSJ followed six hours later without acknowledging that Crain’s was there first. That’s a Debit.

(Audit Corrects: An earlier version said the Crain’s scoop included the information that Mort Zuckerman and Cablevision’s Jim Dolan were also looking; Senior Reporter Matthew Flamm, who broke the story, tells us those details came later.)

Meyerson’s informed opinion

Back to the crisis thing, a Credit to Harold Meyerson, who unlike Brooks above, proves he can hang with the financial-crisis analysis, in a Washington Post column headlined “A New New Deal”. Meyerson says the three decades after World War II were “real” prosperity and calls the late 1920s, the late 1990s, and this decade periods of faux prosperity, mirages created by the heat of huge asset bubbles.

Here are Meyerson’s prescriptions:

And out of this debacle emerge two paramount lessons for our highest-ranking policymakers: Regulate the American financial sector, which is now turning to the government for a bailout. And commit the government to doing all in its power to generate broad-based prosperity, through laws enabling workers to bargain collectively, through a massive public commitment to projects ‘greening’ the economy, through provision of universal health coverage and affordable college educations.

This isn’t (entirely) about ideology. Meyerson clearly knows the subject; Brooks just as clearly doesn’t.

Clothing analysis: why?

When is a tie just a tie?

Don’t ask the Times, which gets another Debit for deciding it would be a good use of precious column inches to analyze the sartorial selections of Messrs. Spitzer and McGreevey, the New York and New Jersey governors felled by sex scandals, and their wives in their come-to-Jesus press conferences.

The look, for him: a dark suit, starched white shirt, red, white and blue striped tie.

The look, for her: a powder-blue jacket, pearl necklace, matching earrings.

This, it seems, is the uniform for the modern public apology.

It was worn, with eerie, down-to-the-last-detail resemblance, by Gov. Eliot Spitzer of New York and his wife, Silda, and Gov. James McGreevey of New Jersey and his wife, Dina, when the couples first confronted allegations of marital impropriety…

Actually, we find out the details weren’t quite the same. Spitzer’s stripes slanted down from his right to left, while McGreevey’s went the opposite way. And Silda Spitzer wore two strands of pearls while Dina McGreevey wore one. But the similarities trumped the differences, according to reporter Michael Barbaro.

Hey, Times editors, you’re not Us Weekly, and no one cares.

Strong bond

Credit the WSJ for its excellent three-person interview with bond-guru Bill Gross and his mentor Edward Thorp. A great read.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.