The business press, also not long ago, was shocked, shocked to learn, from the New York attorney general, of all people, that Wall Street stock research was indirectly funded by the very companies the analysts were analyzing. That research—paid for by Citigroup, Merrill Lynch, CSFB—all the major Wall Street firms—turned out to be fraudulent. Bogus. The business press then learned, also courtesy of Eliot Spitzer (that would be Governor Spitzer to you, WSJ editorial board) that insurance brokers made insurers pay them “contingent commissions,” also known as “kickbacks,” in return for steering them commercial business.

How long had these practices been in place? Decades.

And how long have the ratings-agencies labored under their own conflict? Since the 1970s, according to Jesse Eisinger in Portfolio, when the Securities and Exchange Commission designated them a “public good” and required them to drop their subscription model and charge the subjects of their work.

Point is, the financial system is riddled with conflicts of interest. Some are unavoidable. Many can be managed. But all must be watched. This is why we have a business press, in my view.

It is good to point out that information providers such as McGraw-Hill Companies’ Standard & Poor’s overrated the quality of some bonds in order to win more business and fueled the “subprime mess.”

“CREDIT AND BLAME: —- How Rating Firms’ Calls Fueled Subprime Mess —- Benign View of Loans Helped Create Bonds, Led to More Lending

The Wall Street Journal
Aug. 15

But, as the lead paragraph explains, S&P did that seven years ago.

in 2000, Standard & Poor’s made a decision about an arcane corner of the mortgage market. It said a type of mortgage that involves a “piggyback,” where borrowers simultaneously take out a second loan for the down payment, was no more likely to default than a standard mortgage….

But credit-rating firms also played a role in the subprime-mortgage boom that is now troubling financial markets. S&P, Moody’s Investors Service and Fitch Ratings gave top ratings to many securities built on the questionable loans, making the securities seem as safe as a Treasury bond.

Now you tell us. You don’t have to be an S&P analyst or a business reporter to know that someone who borrowed a down payment is more likely to default than someone who didn’t.

That’s why I put a higher premium on this kind of business reporting. Check the date:

Still, the rating agencies have yet to downgrade large numbers of mortgage securities to reflect the market turmoil…Meeting with Wall Street analysts last week, Terry McGraw, chief executive of McGraw-Hill, the parent of S.& P., said the firm does not believe that loans made in 2006 will perform ”as badly as some have suggested.”

Nevertheless, some investors wonder whether the rating agencies have the stomach to downgrade these securities because of the selling stampede that would follow.

“Crisis Looms in Mortgages”
By Gretchen Morgenson
The New York Times
March 11

The fact is, theTimes has been hitting the subprime issue harder and longer than Forbes, Fortune , The Wall Street Journal, The Financial Times, and other publications devoted solely to business and financial news. This should not be, but it is. The Times has a large business staff, but it is not really part of the business press. It’s a general circulation newspaper. It also has a good sports section, which is more than the business press can say.

It’s not that other coverage has been bad. But this is better. A story in April told us that while the mortgage industry touted as recently as January the benefits of subprime lending as a tool to raise homeownership rates, it will actually serve to decrease those rates. The Times, led by the indispensable Gretchen Morgenson, explains the trapdoor terms of the deals: “reset” rates that would raise monthly payments, prepayment penalties that preclude refinancing, and no escrow accounts, so property taxes aren’t set aside, making monthly payments seem lower than they are. Those loans are not doing borrowers a favor, and lenders know it.

But according to experts on lending practices, the products devised to propel homeownership did so only as long as housing prices kept rising. Now that prices have started to fall, these products look instead like a transfer of wealth to mortgage lenders from those who can least afford it: subprime borrowers.

I like, too, the Times’s unapologetically quoting the nonprofit Center for Responsible Lending in the story; too often the business press ignores nonprofits and trial lawyers, believing them to be biased whiners, which is fair, except that it also describes most companies and trade groups, too.

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.