The press has a Lehman problem.

We’ve suspected as much for a while now, but only steeled ourselves to trace its outline after we came across an unfortunate New York magazine cover story in early December on former Lehman Brothers CEO Dick Fuld.

We have a two-pronged argument here. On the one hand, the New York story was particularly bad, because we know enough about Fuld that to portray him as a victim, which the piece does, is just plain uninformed. But that said, the New York story also reflects still-existing gaps in broader press coverage of Lehman, and it would be unfair to expect New York magazine to give us the kind of quality coverage that financial mainstays, even The Wall Street Journal, which has led on Lehman, have had a hard time producing.

And this last point is the one we care about most. If the press had given us a more broadly contextual narrative of the financial crisis—see Dean Starkman’s “Boiler Room” piece for more on that—it wouldn’t be nearly so easy for New York either to isolate Fuld from the larger story of financial collapse or to let him off the hook.

The fact is, coverage of the financial crisis over the past several months has demonstrated two frequent failings: first, and most importantly, a narrowness of scope that leads reporters to obsess over esoteric financial details without conveying their broader significance—which in turn leads to a focus on the wrongs against investors as opposed to those against borrowers; and second, a belief in the usefulness of approaching the financial crisis through profiles of CEOs and policymakers, which inflates the importance of individuals —as opposed to calling attention to the system over which they presided. To add reader-insult to reader-injury, those individuals are too often let off the hook for the things they did do.

The latter tendency is especially a problem in magazines, and New York gave us a particularly blatant example of both flaws in its cover piece.

We’ll take you through that now, so you see the kind of problems we are talking about, before wading into the broader coverage.
We’ll start, as any reader would, with the cover itself:











The horns photoshopped onto Fuld’s head pretty much indicate that problems are to come. After all, nothing quite undercuts criticism like overstatement. And the crux of the article’s argument bears out that initial concern. First we get a synopsis of the conventional wisdom:

Fuld is blamed for betting the farm on the way up, then stubbornly refusing to recognize the company’s dire straits on the way down.

And then the stroke of counter-intuition—the bread-and-butter of magazine journalism—to drive the piece forward:

But Fuld is also in some sense a victim.

If you are wondering how, as any sensible person would, read on:

He’d held on to 10 million shares of Lehman stock until the end and lost almost $1 billion—‘He drank the Kool-Aid,’ said one executive. And consensus grows that the Lehman fall was one of Treasury Secretary Henry Paulson’s and Fed chairman Ben Bernanke’s biggest mistakes, amplifying the crisis exponentially. These days, Fuld goes to his office in the Time & Life Building—he’s still nominally the CEO of Lehman—and talks on the phone to a few former colleagues, those he’d been close to for years, replaying the final months of the firm. They often work one another to the edge of rage trying to decipher ‘the mystery,’ as Fuld still thinks of Lehman’s collapse. Why didn’t the government save Lehman the way it saved so many others, Bear Stearns and AIG and, just last week, Citigroup? Fuld and his allies can’t help but blame Paulson, whom he’d trusted and, until the end, viewed as an ally and even a friend. Yet Paulson, for reasons Fuld doesn’t yet understand, participated in making him the scapegoat. ‘He feels betrayed,’ said one friend.

Wait, Fuld feels betrayed? What kind of Alice-in-Wonderland world is this? Fuld didn’t just drink the subprime Kool-Aid, but mixed the stuff up and passed it around. The problem is, once one understands Fuld’s role as a vital cog in the system, which is pretty much undeniable (we’ll get to that in a moment), the article’s entire argument falls apart.

First of all, Fuld can’t be the “victim” of an institutional collapse he himself brought on—especially not, as NY mag notes, while wandering through his Greenwich, Conn., house (one of five) with “twenty rooms, eight bedrooms, the poolhouse, tennis court squash court.” There are indeed victims here, but Fuld is not one.

Second. Yes, the article raises a crucial question in asking why Lehman was let to fail—severely deepening the financial crisis—and the argument now floating around that Paulson and Bernanke should have saved it is quite convincing. Count us among those who want to know more about the logic of that decision.

But.

That said, New York has the roles all mixed up. We are the ones who should feel betrayed here, and not just by Fuld. The fact is, the government owed Fuld nothing and the public everything—and the Lehman debacle was just one more way the bailout, such as it is, didn’t deliver.

Now, that Fuld has a somewhat narrower view is not surprising—after all, we are all at the center of our own universes, and CEOs with nicknames like “gorilla” probably even more so—but NY doesn’t have to go along with it.

Which brings us to what should have been the heart of the article. These nuggets are buried a few pages in, and briefly describe two important facts. One, Lehman’s leverage:

At one point, it was said that Lehman had borrowed $32 for every $1 in its coffers.

And two, its role in subprime:

Lehman quickly put its capital to work in real estate and soon was a dominant force in the sub-prime mortgage market, which catered to borrowers with shaky financial backgrounds.