Learning Journalism Lessons of the Past

The Times this morning continues strong recent press performance on the busted-and-bailed-out banking industry’s Golem-like resilience and continued potency in shaping public policy to its own interests.

Today’s story explores how the recently signed “Helping Families Save Their Homes Act” emerged from the Congressional sausage factory without a provision to give bankruptcy judges the ability to reduce principal on first mortgages, the so-called cram-down feature. This was a top priority among borrower-advocates.

Now, I’m not the one to judge the merits of such a provision. I’ll only note that the insolvent banking industry, which has no credibility, is against it, while consumer groups, like the Center for Responsible Lending, which called the crisis, oh, a decade ago, are for it. The president is supposedly for it, too, but that’s part of this story.

The provision, among other things, would end the current legal anomaly in which bankruptcy judges can now reduce the principal of mortgages on second homes, but not primary residences. Go figure.

One of the nice things about the provision is that it would have given struggling borrowers something they almost never have in negotiating with banks: leverage.

The proposal would have shifted negotiating power to the millions of troubled homeowners who could use the threat of bankruptcy to wrest lower monthly payments from lenders. The banks claimed that that would force them to raise rates.

But, like I said, it is not for me to judge the provision on its merits. ;-)

What is nice to note, however, is that the Times piece is one of string of fine stories in the mainstream media lately to dog the post-bust policy debate in real time and in great, behind-the-scenes detail. The Audit’s Ryan Chittum, “the Oracle of Tulsa,” noted just yesterday the WSJ’s good effort to dig into financial-industry lobbying to dilute efforts to bring off-balance-sheet vehicles back onto the banks’ books. That followed another nice Journal story about banks’ efforts to undermine mark-to-market accounting, which sets an objective standard for valuing bank assets and provides transparency for investors, policymakers, and taxpayer/owners. The Times did a nice job in exploring industry efforts to keep credit-default swaps from trading in the light of public exchanges; Wall Street favors murky private clearinghouses.

As frustrating as it might be as a taxpayer to witness the banking lobby’s Zombie act, it is heartening from a journalism perspective that news organizations are getting into the policymaking plumbing.

This strikes me as welcome change from the recent, pre-crisis past, when the financial press did an abysmal job, to say the least, in covering regulatory and legislative policymaking in economic and financial areas. Little connection was made between public policy and its economic consequences. Indeed, reading the political and financial coverage side by side over the years, one could be forgiven for believing that Washington was as far from Wall Street as Mars from Uranus (ka-ching!).

But seriously, the coverage was weak. Everyone now knows the consequences of the Commodity Futures Modernization Act of 2000 and, thanks mainly to Mother Jones and The Texas Observer, the nefarious and deeply damaging role by played by Phil Gramm (R-UBS). No consensus has yet formed but few doubt there were momentous consequences from 1999’s Glass-Steagall repeal, which, among other things, ratified the creation of one-stop subprime-lending/securitization shop Citigroup, now banking’s biggest basket case. The name of that bill, by the way, was Gramm-Leach-Bliley.

In a good story last year, The New York Times looked back at a critical 2004 Securities and Exchange Commission meeting in which that inglorious body voted to loosen dramatically capital requirements of big financial firms. Among those lobbying for the change: Hank Paulson, then Goldman chief, later Goldman benefactor. As the commission’s Harvey Goldschmid put it at the meeting:

“We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”

Yuck, yuck. Good one, Harv!

In its story, the Times candidly acknowledged that no one from the press, including from the Times was there.

The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.

We pay a price for such inattention. If only the public had been treated to the kind of probing coverage of that policymaking as we’re getting of the current crop.

Today’s Times story, for instance, examines the non-role played by President Obama in shaping the legislation and traces the administration’s lack of enthusiasm to Treasury Secretary Geithner.

While Mr. Obama reaffirmed his support for the proposal shortly after becoming president, administration officials barely participated in the negotiations, a factor that lobbyists said significantly strengthened their hand. Lawmakers who have discussed the issue with the administration said that the president’s senior aides had concluded that a searing fight with the industry was simply not worth the cost.

Moreover, Timothy F. Geithner, the Treasury secretary, did not seem to share Mr. Obama’s enthusiasm for the bankruptcy change.

Mr. Geithner was lobbied by the industry early. Two days after he was sworn in, he invited Mr. Fine from the community bankers to his office for a private meeting. The association, with influential members in every Congressional district, is one of Washington’s most powerful trade groups.

A senior adviser to Mr. Geithner said the administration supported the cramdown proposal, but it preferred that distressed homeowners seek to modify their loans through the Treasury’s new $75 billion program, which rewarded banks if they modified home loans, rather than through bankruptcy court.

Mr. Durbin [the Illinois Senator who supported the provision] acknowledges that it was a mistake not to call on the administration for help.

If the recent raft of legislative, rule-making, lobbying and policy stories is an indication that the financial press has learned its lesson from its inattention to how financial policy is made, that’s all to the good.

Even if the policy doesn’t go the way you want, at least you know.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.