Actually, this passage is deeply unfair to the professionals who maintained their integrity and refused to sell exploding products. Everybody wasn’t doing it. And to the extent that journalism such as this discourages public clamor for investigation of who knew what when in the investment banks, it’s a disservice.

The Fortune story was too much for Janet Tavakoli, a financial industry consultant and author who warned of presciently potential problems in financial firms. In an email to CJR that inspired this post, she doesn’t buy the argument even that executives will get off for misstating their firm’s financial position:

The premise of this week’s Fortune cover story… is not only incorrect, it lacks Common Sense. The article seems unable to muster outrage. In the words of Thomas Paine: “a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT.” Fortune talks about the difficulty of proving criminal intent when the SEC, Fed chairman and others thought (or more to the point, studiously avoided rational thought) things had gotten as bad as they could get. Since when are the popular delusions of those outside one’s firm a defense for willfully failing to mark your positions to market and material accounting weaknesses if not misstatements?

Fortune also gives the benefit of the doubt to senior managers who were way off the mark in their earnings releases and says “we’re not talking here about …Ponzi schemes.” In a few cases, the latter is actually true, but in others, we should be talking about Ponzi schemes and asking why the SEC did not shut down the securitization groups at some of the major investment banks doing business in the United States.


Let me help the folks at Fortune out. As I explain in my new book, Dear Mr. Buffett: What An Investor Learns 1,269 Miles from Wall Street, value-destroying securitizations went well beyond securitizing bad mortgage loans with unexpectedly bad performance combined with a “bipartisan national policy,” and morphed into the accelerated manufacture of CDOs and CDO-squared transactions (especially in 2007) designed to cover up losses. Many of the securitizations were doomed on the day they closed, and any multi-million dollar payday securitization professional worth his or her salt knew it or should have known it.

Fortune’s not alone, it must be said. The bizpress generally still hasn’t really focused on the bread-and-butter of this crisis: the sale of defective loans and defective securities, by the bushel, and the extent to which the sellers knew of those defects.

That’s unfortunate.

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.