Over recent months, The Audit and CJR have investigated how it was that business reporters failed to see the crisis in the mortgage and credit markets as it brewed and bubbled, even when evidence of its unsustainability was plain to see for those who chose to look. I’ve followed CJR’s account with great interest from the perspective of an independent journalist who in the mid-2000s reported on and questioned - often with one palm on the laptop and the other slapped against my forehead - a growing epidemic of financial insanity. The fact is, and as immodest as it may seem to say, independents were repeatedly ahead of the curve on covering the mortgage and real estate bubble and in connecting the dots between vital elements of the bigger story—especially the links between predatory and lending and the metastasizing mortgage-backed securities market.
In 2002, The Nation warned that the mortgage-backed securities market’s bottomless appetite for subprime mortgages was financing an epidemic of destructive lending. In 2003, Southern Exposure exhaustively documented Citigroup’s move into the mass production of high-interest loans designed to drain borrowers’ meager wealth. In 2005, Mother Jones assigned me to find out why the streets of Cleveland were lined with vacant houses. A reasonable question, and I found the answers on the Wall Street credit securities market. Indeed, all through this period, alt-weeklies told tales found in living rooms and legal services offices of homeowners who had believed a mortgage broker’s misleading sales pitch and wound up facing foreclosure. I’m contributing this post to The Audit to explain why I think I and other indie journalists were able to make the connections and warn of the dangers in the mortgage market with the hopes of passing along some of this outsider’s perspective to business editors and reporters. Hey, sharing is only fair—we independents have always relied on the business and trade media’s invaluable foundation of reporting to orient ourselves to the arcane instruments and markets that have such serious consequences for the outside world.
I don’t pretend our work was comprehensive; far from it. And at times it veered into the naïve and under-informed, particularly when it came to the inner workings of the credit markets. And did I predict that the ultimate consequence of what I was covering would be the near-implosion of the credit and banking systems? Hardly. But the fact remains independent journalists exposed the dimensions of the problem with a depth and timeliness that mainstream news organizations simply and regrettably did not match. It’s not about being better journalists; it is about being tuned to a different audience and set of interests.
From 1999 to 2005 I was editor of a small nonprofit magazine, City Limits, covering New York City neighborhoods. Mayhem caused by predatory and fraudulent mortgage lending was a story we couldn’t avoid—criminal rings had infested a HUD mortgage program and left hundreds of homes in Harlem and Brooklyn boarded up or sold in terrible condition at inflated prices to defrauded working-class buyers. (Besides leading to criminal convictions and the suspension of the program, the story we broke ended up as a plot line on The Sopranos, Season Three.) By 2002, I had learned enough to say this in an editorial about the Bush administration’s campaign to increase homeownership by pushing low-income people into real estate: “Without adequate regulation and oversight of the lending industry, it’s lunacy.” The following year we ran a feature on a spike in subprime foreclosures, a dress rehearsal to the mortgage crisis that essentially went unmentioned in the media.
When I left the magazine in 2005 to freelance, I knew an urgent story was out there. I asked the Mortgage Bankers Association for its latest National Delinquency Report, showing state-by-state default rates for home mortgages—and was astounded by the default rates for subprime mortgages. And Ohio was out of control—north of 14 percent of all subprime mortgages were in default. I wanted to tell the story behind that figure. As the real estate bubble raged on the coasts in 2005, San Francisco-based Mother Jones assigned me to report the story a world away, in Cleveland. Nothing prepared me for the streets I would visit, lined with boarded-up houses. I thought I would be gathering tales of wronged borrowers, and did much of that. But the sheer scale of the destruction made it clear that something even more dangerous was going on there. I would soon learn what that was—the city was crawling with real estate speculators, locusts who, with the collusion of appraisers and mortgage brokers, deliberately deceived lenders into issuing mortgages for far more than the dilapidated real estate was actually worth. Predatory lending, predatory borrowing, phony appraisals—the whole system was out of control.
And who was financing all this? How on earth was giving away hundreds of millions of dollars to criminal enterprises a viable business? Those from-the-gut questions led me to briefly describe the market in mortgage-backed securities and the rudiments of its financial modeling, including such strategies as diversifying mortgage securities pools among multiple states and shifting risk back onto consumers through prepayment penalties and other onerous terms.
It should have been obvious, even to a neophyte like myself, that that house of cards would fall apart. But at the time even I fell into the trap of believing that the financial industry’s Masters of the Universe knew best, and that the returns promised to investors on mortgage bonds would be honored. While I received invaluable help from analysts at credit ratings agencies in understanding the mechanics of securitization, they were hardly the ones to tell me that the emperor had no clothes. Community advocates, usually ready to go out on a limb with predictions of doom and destruction, had fallen into an “us versus them” mentality that distorted reality. Typically, they described the problem of mass foreclosures in their neighborhoods as one of collateral damage from a system that generally worked out well for investment bankers and investors alike. Those activists made the same error that Wall Street analysts and business reporters did: believing that the future would follow patterns of the past. As City Limits and other independent media had reported during the 1990s, subprime mortgages had defaulted at high rates for years - with the fallout overwhelmingly hitting urban, minority neighborhoods and borrowers. Yet only briefly, in the wake of the credit crunch of the late 1990s, did the securities themselves falter. And so all of us chose to believe that the story would continue to be one of discrimination and disparity—not a calamity that would swallow the entire housing market and then the economy.
But despite our own shortcomings, I hope business journalists can learn a few things from what we did get right and especially how we got there:
First and foremost, we looked for the real-world impacts of business practices. Financial journalists tend to focus on the internal benefits (to investors and bankers) of economic activity, without accounting for external social costs. We indies saw benefits and costs as inextricably linked. We could see clearly that it was a zero-sum game, and the gap between winners and losers was growing unconscionably wide. That chasm turned out to be a critical weakness in the financial system. The basic model of subprime lending, after all, exploited asymmetries of information between consumers and the financial services and real estate industries. It was only a matter of time before players within the industry—mortgage brokers, subprime lenders, investment banks, ratings agencies, etc.—played the same game, albeit for higher stakes, with the investors who were supplying the funds.
Two, we indies were also reporting out in the real world, in my case thanks to a magazine that values and invests in place-based reporting. While numbers were a starting point, it was only after I’d spent more than a week in a foot of snow in Cleveland that the scope and workings of the growing crisis began to become apparent. Leads gleaned from foreclosure, property and bankruptcy records, tips from consumer lawyers, and a spreadsheet of recent sales transactions compiled by a community development corporation yielded stories far more vivid and troubling than I could have imagined. Entire streets had been taken over by mortgage fraud schemes that left most houses empty and put remaining homeowners under siege. I met a Croatian immigrant whose 95-year-old father was found dead on the kitchen floor after a break-in. A suburban speculator living out a Flip This House fantasy introduced his low-income buyer to a subprime mortgage broker who fudged the borrower’s financial profile on the mortgage application, and didn’t deny it when I called. A speculator used his girlfriend’s good credit to buy a half dozen dilapidated houses, then immediately resold them to his own companies at double or triple the price. What I’d found was an organized crime scene that extended for miles and into hundreds of millions of dollars.
Lastly, I was free (and predisposed) to question authority, not to mention the basic business practices of large financial institutions. I know not every journalist can say that, and believe me, I’ve come to cherish the freedom. It’s difficult enough for business reporters and editors to challenge conventional wisdom, all the more so if they don’t have a business authority to quote or a financial report to cite. The people telling me that a mortgage crisis was upon us weren’t the Bear Stearns or Fitch analysts I called; it was the community organizers, public interest attorneys and elected officials dealing with the consequences. These weren’t conventional experts, and they hardly had all the answers; sometimes I was the one helping them understand the perverse workings of the mortgage market. But they had to become informed simply to serve their clients and constituents, and they did. Advocates have their biases—like all sources—but as a place to begin identifying the issues that matter, the stories that must be told, they are indispensable.
To be sure, some mainstream business journalists, notably, Peter Goodman and Gretchen Morgenson at The New York Times, among others, have embraced these reporting strategies and values, if only to keep up with the sheer pervasiveness of the mortgage crisis in almost every corner of American life. And that’s all for the best. If there’s one lesson to be learned from the financial crisis, it’s that numbers too often lie; business journalists have a responsibility to readers and viewers to report behind the numbers, from the neighborhoods of the nation, on the real-world consequences of business practices, and not just from the perspective of Bloomberg terminals and earnings reports.
Yet, a year into the crisis, I am sorry to say that business journalism on the whole, has failed to learn from its fatal reliance to an overwhelming degree on bankers, ratings agencies, and all the other usual sources—sources that have many reasons to provide bad information or information that is at best—at best!—incomplete. Mainstream business journalism, I find, continues to speak parochially to investors and their interests, as though the public has only passing interest in the outcome of the discussion. As the past year has taught us, it does so at all of our peril.

Pretty good summation, Alyssa. I remember City Limits back in the day. We both probably started out on this subject by interviewing Matt Lee at Inner City Press. He had the goods on the big banks & their storefront loansharks quite a while back. And it's very good--and more should be done with this--that you noticed the "Flip This House" crowd's contribution to the crisis. It does appear that the 2000s birthed (or maybe just expanded) a class of Americans who think money-for-nothing is their birthright. From the flipper/mortgage fraudsters to the loan brokers, up the line to the Wall Street types who bundled up the stuff and sold it as A-1 investments, these folks have deluded themselves that fraud="work." Some are paid millions, some swipe mere hundreds of thousands, but they share a common culture. It is a culture that went unquestioned (maybe even unnoticed) by the mainstream business reporters. We indy-altie folks can smell it, though. Follow your nose.
#1 Posted by edward ericson, CJR on Mon 14 Sep 2009 at 12:56 PM
Bloggers were also warning about the financial collapse several years before it happened. They, like the indie reporters, have the leeway to connect the dots, and don't have MSM corporate employers looking over their shoulder, telling them what they can or can't write about. Much of what passes for financial reporting in the mainstream media now consists mostly of regurgitating the daily market ups-and-downs or corporate press releases. If I hadn't been hanging around the econoblogs or the "doomer" web sites in the summer of 2007, I wouldn't have known to get out of the stock market then...
#2 Posted by fred green, CJR on Mon 14 Sep 2009 at 05:00 PM
The Sopranos episodes dealing with the HUD scam were from Season Four.
#3 Posted by Nigel, CJR on Mon 14 Sep 2009 at 05:35 PM
Good. Great.
Now look into the damage the Federal Reserve has done since 1913. Right from the get go, everything they said, has been shown false, or wrong ten years later. And, they go on as if nothing is wrong. And, why shouldn't they? Big banks and financials companies and Uncle Sam reap all the benefits, and pass on all the costs. Always.
#4 Posted by Paul, CJR on Tue 15 Sep 2009 at 06:55 AM
A terrific article, Alyssa, and a very good analysis of why store-front indie publications were breaking stories that, by and large, the MSM overlooked until after-the-fact.
Yet even today, two years into the mortgage crisis and when a third wave is about to hit us, when journalists cover the story they still tend to turn to the usual suspects for quotes, talking heads, and facts and figures.
Keep up the good work!
#5 Posted by Charley James, CJR on Tue 15 Sep 2009 at 11:25 AM
Wrong! You and others like you were and are so much better journalists than the MSM wonks and toadies that it doesn't bear more than brief discussion. You saw what was happening on the street. They saw the oceans of cash sloshing around in the penthouses and suites. Even the newspaper scribblers were cheering blindly as their employment collapsed, to their great surprise. Exactly the same thing is happening now. The wonks say the recession is over, the MSM yell "hurray," while the alts are saying "Wait!" When the federal tap finally is shut off, another crash will descend, and the only voices of caution and warning will have been ignored. I commend you and your lonesome colleagues for your superior work and hope your voices can be heard and heeded.
#6 Posted by Peter Allard, CJR on Tue 15 Sep 2009 at 07:54 PM
No mention of the Democrats' role in the meltdown. Hmmm.
Why not, I wonder, go back to the original perpetration? Would it reveal something nasty about government you don't want to say?
Economics is the study of unintended consequences - primarily, that is, the consequences of wrong-headed government intervention in the marketplace.
This usually means interference in the 'heart of the contract,' relative prices and wages, and the allocation of credit - which are not its 'umpire' functions. Once government interferes where it doesn't belong, it sets the entire economy askew.
In baseball parlance, it has taken its eye off the ball, its legitimate regulatory responsibility (level playing field; enforcement of contracts; etc.) and consequently sets off reverberations that ripple throughout the real economy, as market participants try to outwit the politicians, bureaucrats and regulators - not a difficult thing to do.
The government may commit the initial perpetration, but from there on it's behind the curve. The overriding purpose of the folks on the other side becomes probing for loopholes and weaknesses, while the government can then only play catchup. The result may be seen in the size of the Federal Register and the Tax Code.
Having been a Wall Street banker, I can assure you that the sharpies in the financial industry will always frustrate the illegitimate intentions of government, probing for loop holes and weaknesses.
It may take 30 years or more for the stresses and strains to appear, but appear they inevitably do. To see the ultimate results, please visit, as I recently did, the ruins of early Mesoamerican cultures. Archeologists may say they don't understand the reasons these cultures collapsed and their
cities abandoned. They look but they don't see. An understanding of human economic behavior would provide the clue.
#7 Posted by Christopher LoRicci, CJR on Wed 16 Sep 2009 at 12:53 PM
So now we know. 'twas those meddling Democrats killed the Olmecs. Thanks, Dr. Chris! And for more on the dangers of "colossal heads," see:
http://www.youtube.com/watch?v=Q4hGTODF2tU
#8 Posted by ed ericson, CJR on Wed 16 Sep 2009 at 05:08 PM
I didn't have the time nor the inclination to go through all the intermediate steps of the economic disintegration of a Mesoamerican culture, but the chore has been done for us for another culture half-way round the globe, Rome.
On The Burdensome Later Empire:
- The tax burden increased on a shrinking economy.
- Taxes were grotesquely regressive, hitting the poorest hardest.
- Taxes grew ever heavier until tax collectors were feared and hated more than the barbarians.
- The coinage was debased; inflation raged.
- The 'Edict of Maximum Prices' was a failure.
- Shortages appeared in food and housing.
- Labor mobility was outlawed; workers were made slaves to their jobs.
- The population declined.
- etc., etc.
- Hit 'Repeat.'
Any time a civilization declines and falls, save yourself some time and look first for the economic causes. Crushing taxes, debased currency, price and wage controls, foolish edicts,
distorting regulations, misallocation of resources, shortages, declining populations, etc.; in short, endless economic folly.
I've seen ruins in the Yucatan with double walls around the central core where the priestly/political class lived, and (my interpretation here) there didn't seem to be too much of a threat from foreign invaders, from what I'd seen and read. I believe they feared most the more numerous, burdened peasants living just outside their double walls.
So, the only thing we learn from history is that we never learn from history. Does anyone want to bet me that Obama institutes wage and price controls, when America starts to imitate the Weimar Republic or Rome under Diocletian.
But then, what do I know: I also believe that Obama - that Mystery Man about whom we know nothing - wants a world without America, or at least a free and prosperous America.
#9 Posted by Christopher Ricci, CJR on Wed 16 Sep 2009 at 08:12 PM
Let's stipulate that the indies, alts, and bloggers got it right early and concede David beat Goliath. The larger question remains unanswered: why didn't MSM fail it's responsibility?
It may be true enough but wholly insufficient to say, for instance, "Mainstream business journalism, I find, continues to speak parochially to investors and their interests, as though the public has only passing interest in the outcome of the discussion." Clearly even those "parochial interests" are not well served by such myopic focus. So why does it happen?
I don't have any answers but I do know that the question goes far beyond business journalism and this particular instance. The fact is that, in the last ten or so years, journalism has failed the public in virtually ever major crisis -- from national unpreparedness to war to human rights to privacy and various other government criminality still untold, including the financial scandal.
We desperately need to know why this is so. We need to know if the endeavor of journalism is worthy of our trust -- a trust certain interests have spent years undermining for their own nefarious purpose -- if only to find alternatives as remedy. Because, Lippman, as quoted in the original story, is correct: no facts, no democracy. We are now at a point when a segment of our society can feel justified in choosing to disbelieve discomforting facts. It is worth wondering, if these circumstances had prevailed over thirty years ago, whether we would now think of Watergate as "nothing more than a third rate burglery."
How all this came about is important, but not as much as why.
#10 Posted by Satorist, CJR on Fri 18 Sep 2009 at 01:15 AM
Most mainstream 'business journalism' was just cheerleading fluff about how wonderful capitalism is and how no other system can compare. Hardly surprising that the cheerleaders missed the boat. They had drunk so much Chicago School Kool-Aid they missed Enron (before the fall). You still hear the blind ideologues banging on about 'risk', 'reward' and how 'creative destruction' will save us after the economic Hiroshima of credit default swaps.
#11 Posted by Milton Pinochet, CJR on Fri 18 Sep 2009 at 07:07 AM
Satorist,
Good questions. We have some answers.
See Dean's "Power Problem."
#12 Posted by Ryan Chittum, CJR on Fri 18 Sep 2009 at 09:42 AM
Alyssa
City Limits has done three decades of great work, and it's careful attention to the vineyards of housing and foreclosure and the like performs a great boon for New York. We in the MSM often follow it and magazines like it and too rarely credit, as you know.
And I am a great fan of the alternative press, from local weeklies to Mother Jones, not to mention the great Matthew Lee of the Bronx. In an age of attitudinal blog screaming, it's a relief to pick up City Limits or Mother Jones and read carefully reported pieces--I only hope the funding streams keep these pubs alive. They provide the sort of intelligent, passionate kidney punches that hold the mainstream media at least vaguely accountable.
That said, I would argue that reporters,although not always in the business sections, were not quite so derelict as you suggest. Sandra Fleischman, Peter Goodman and I were all exploring the underside of this explosion of unregulated bank misbehaviour in 2003, '04 and 05. Sandra and I reported on these scams, went to Phila in '05 to find the same lines of boarded up houses and raised the explicit question: Is the ideological Mania for Home Ownership (very much fed by big banks and Fannie Mae) in Danger of Destroying the Working Class?
And Gretchen, as you very fairly note, was at this very early on in the pages of the New York Times, and not on the inside pages either. She is deservedly one of their most often bill-boarded columnists.The LA Times too did some great, early reporting on the lunatic sub-prime predators preying on Southern California, and explicitly connected that back to larger bank behavior.
I hope this doesn't come off as an apologia. Much business reporting is sycophantic and dreadful; those who write truthfully, as Tiabbi did recently on Goldman, are too rare. And at The Washington Post, we never launched the sort of connect-the-dots big piece that would have allowed (and forced) readers to realize early on that the misery in Philadelphia was the result of de regulation and the ravages of deregulated world capitalism. Nor were we quick enough--not nearly quick enough--to pick up on the racial dimensions of this crisis. But the picture was a bit more complicated than you portray.
#13 Posted by Michael Powell, CJR on Fri 18 Sep 2009 at 11:14 AM
Thanks to all for excellent comments, including Nigel's input on the Sopranos.
Re: Michael Powel et al:
As we say often around here, the question of what was and wasn't written by the MSM during the pre-crisis period is not a matter of opinion. The record is the record. It's just a logistical, fact-gathering problem to wade though oceans of material to find relevant stories. Or it was, until we did it:
Click here, http://www.cjr.org/the_audit/the_list.php, to find "The List," a database of 730 good, bad, and indifferent stories, categorized and color coded, on Wall Street and lenders from 2000 to mid-2007. Clickers and sorters will find references to 51 stories by the WashPost, including eight by Fleishman and a three-part expose on ratings agencies by Alec Klein. Our main aim was to find stories on abusive lenders and their Wall Street backers, but we also included many others relevant for various reasons. We didn't catch every relevant story, including a couple by Mr. Powell, but the list is open and we are always adding to it. Send submissions to editors@cjr.org. "The List" was the support for our major look at pre-crisis coverage, the one Ryan linked to above: Power Problem: http://www.cjr.org/cover_story/power_problem.php?page=all
#14 Posted by Dean Starkman, CJR on Fri 18 Sep 2009 at 03:30 PM
Dean
Good point. And in fairness on my part, some of the pieces would have been made stronger by taking a stab at the broad, over-arching explanations of the sort Alyssa wrote about--and that goes for my pieces as well.
To my mind, among the journalistic lessons of this crisis is that reporters, that be us, need to push harder at the institutions for which we labor, and argue for the broadest possible pieces. The piece that connects the working class African American in Trenton who has just taken out a predatory loan to a Lend America sweet-talker to Wells Fargo to a tranch holder in Switzerland to a compromised SEC was there in 2003 no less than today.
Best
Michael
#15 Posted by Michael Powell, CJR on Fri 18 Sep 2009 at 04:01 PM
Thanks, Mike. Yeah, the way I see it, the more reporters looking at predatory lending, the more likely one of them would have followed the trail back to the funding source. While the alts did a good job, especially on the front end, the mortgage market, only the MSM had the knowledge, sources, and resources to trace the problem back to Wall Street and the aftermarket.
In the end, the split between alts and MSM is artificial. Alts can and should become more sophisticated about the markets; MSM can and should rake more muck.
Regards,
Dean
#16 Posted by Dean Starkman, CJR on Fri 18 Sep 2009 at 05:52 PM