This troubling Tale of Two Citis shows how the business press, even as it produces oceans of copy, can lose its way. I don’t think the business press is lazy or lacks courage. I know the opposite to be largely true. I do think, though, that it is poorly led. An overemphasis by senior editors on deals and other scoops has forced reporters to give away far too much in the never-easy trade-off between access and arms-length scrutiny. A lack of investigative experience and overall editorial vision at the top has produced coverage that is too narrow, too incremental, and insufficiently confrontational, in my view.
It has also led to what I think is a fatal sense of disconnect between what readers read in the business press and the lives they lead day to day. I’ll have more on that in another post.
Hudson, by the way, spent twenty years at the Roanoke Times and wrote freelance for other publications. Now, he’s a staffer at The Wall Street Journal, which, to its credit, hired him in May 2006. I consider the Journal’s hiring of him—a now forty-five-year-old reporter who covered poverty, prisons, and the like—a minor miracle.
And while Hudson is no doubt a clever fellow, we can see in retrospect that he cheated: he made use of the abundant evidence in the public record.
How many business-press readers—or business reporters, for that matter—remember that the Federal Trade Commission sued CitiFinancial over its abusive credit-insurance sales practices? Citi argued that its problems stemmed from the odious Associates and moved to dismiss the case. Bad move:
The FTC countered with affidavits from two former New York managers who said CitiFinancial was just as bad as Associates. Gail Kubiniec said CitiFiancial packed loans with insurance if a customer ‘appeared uneducated, inarticulate, was a minority, or was particularly young or old…The more gullible the consumer appeared, the more coverages I would try to include in the loan.” Michele Handzel said CitiFinancial created so much pressure to ‘flip’ customers into new loans ‘that some employees did not even bother to obtain customers’ signatures’ on the refinancings.
Citi called the allegations, Hudson writes, “an affront to the thousands of CitiFinancial employees who every day work in the best interests of their clients.” But then it abruptly agreed to a settlement, $240 million in 2002, covering two million customers.
Hudson summarizes press coverage of the time, which indeed was weak:
Media coverage accentuated what the FTC and Citigroup wanted in the headlines: the deal was the largest consumer protection settlement in FTC history—and an effort by Citigroup to straighten out an old mess. ‘These problems basically related to a company before we acquired it,” Weill explained.
And the FTC-Citi case was just one of many available signs that subprime was going mainstream and bringing its crooked habits with it. Subprime leader Household International Inc. paid an even bigger penalty—$484 million—the same year as Citi. Another big subprimer, First Alliance Mortgage Co., also settled predatory lending allegations that year.
Meanwhile, a whole new generation of subprimates emerged, including the likes of New Century and Option One, a unit of H&R Block Inc., to challenge the dinosaurs bought by Citigroup and other subprime stalwarts, like Household International Inc. Ameriquest Mortgage Co., which only a few years before was still called Long Beach Mortgage Co., sponsored the 2005 Super Bowl halftime show, the Rolling Stones 2005 World Tour, and owned two blimps. Its principal owner, Roland Arnall, hit number eighty-five on Forbes’s list of the 400 richest Americans, with a net worth of $3 billion.
By 2006, the subprime business had, under the business-press radar, exploded to $600 billion, ten times the volume of a decade before and fully one fifth of all mortgages. This, Audit Readers, is nuts.
And it was Citi, one of the biggest beats at any financial publication, that led brandname banks and Wall Street into the subprime sector. As Hudson writes:
Citigroup’s push into the subprime market is a dramatic example of how the merger of high and low finance is playing out on Wall Street and on side streets across the South
This story was written, again, in 2003.