Peter S. Goodman HuffPost Reporting pgoodman@huffingtonpost.

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Bad News: New Book Probes Role of Press in Financial Crisis

First Posted: 02/ 5/11 01:12 AM Updated: 02/ 5/11 01:17 AM

Given that some economists still debate the root causes of the Great Depression, little wonder that a
multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Recrimination sometimes seems like the real American pastime, and the near-slide into the financial
abyss presents a teeming buffet of potential culprits.
Depending upon your ideological predisposition, the crisis owes to the greedy bankers who turned
home loans into casino chips, or to the federal regulators who abdicated authority, allowing Wall Street
to turn itself into a gambling parlor. It was homeowners who treated their mortgages like winning
lottery tickets, cashing in through repeated rounds of refinancing. It was politicians who championed
expanded home ownership with reckless tax incentives and mandates forcing banks to lend even to
borrowers with sketchy credit. It was the Federal Reserve which kept interest rates too low for too long.
But one segment of American society has largely evaded scrutiny in the search for the source of the
disaster: the financial press. This is a dangerous oversight, argues journalist Anya Schiffrin in an
intriguing and thoughtful new book, "Bad News: How America's Business Press Missed the Story of the
Century."
As the crisis begins to fade from memory, and as acute fear is predictably replaced by complacency, a
rigorous accounting of what actually transpired is imperative. Schiffrin aims to impose that accounting
on those of us who make our living writing about finance. Her findings are not comforting, suggesting
that coziness with sources and a lack of financial acumen made many reporters vulnerable to bogus
assurances that nothing was wrong.
Schiffrin is herself a member of the tribe, having worked as a correspondent for Dow Jones news service
in Vietnam during the Asian financial crisis (an experience that gave her an taste of the risks inherent in
an economy shy of reliable information). She brings her experience and contacts to bear on this project,
probing how shrinking budgets in a time of traditional media decline deprived many newsrooms of the
resources needed to unravel a complex story, just as financial journalism confronted its ultimate test: a
historic real estate bubble enhanced by the steroids known as derivatives.
A necessary disclosure: I wrote a chapter of this book, examining my experience covering the crisis as
the national economic correspondent for the New York Times. And I don't fully buy into its overarching
thesis that the reporting in the run-up to the crisis amounts to a systemic failure. As several chapters in
Bad News make clear, a good deal of excellent work in the years before the crisis could have limited the
pain had warnings been heeded--not least, work by my former Times colleagues Gretchen Morgenson
and David Leonhardt, who sounded the alarm early on that home prices were getting well of whack with
American incomes, setting up a fall.
The trouble was that a louder chorus repeatedly drowned out this probing reporting about the
magnitude of the real estate bubble--a steady celebration of permanently rising home price, the fantasy
that propelled a construction binge, a mortgage bonanza and no end of wealth that got created along
the way. That chorus abetted and enabled the capture of the regulators who are supposed to be able to
tune out such noise while dispassionately scrutinizing the numbers.
This is not to exonerate the press or chastise the lazy reader, the reflexive posture for many a scribe
whose words have failed to produce happy results. Though the press rarely has the power to dominate
events and does not make policy, we are collectively responsible for the understanding that our
audience takes away from our words. And it is a fair hit to assert that we are prone to being
manipulated and getting swept up in the excitement of the times, rather then stopping to ask the
critical, typically difficult-to-answer questions that public service journalism demands.
This is not so much because we consciously decide to become cheerleaders, urging on bubbles that take
shape on our watch, but rather because cheerleading is the product of the easiest options that present
themselves on any given day. Rising prices, soaring stock markets and the wealth accruing to executives
overseeing the festivities are verifiable facts, whereas warnings and worrying entail the indulgence of
conjecture and speculation, and they might turn out to be wrong.
It takes a special breed of reporter to do the digging and put faith in their convictions as they take on the
dominant narrative of the moment--particularly when that narrative is championed by prize-winning
economists celebrated as wise men, such as the former Federal Reserve Chairman Alan Greenspan and
his successor, Ben Bernanke, who played leading roles in convincing the public that everything was fine.
I first saw this dynamic up close during the technology bubble of the late-1990s. I never heard one of my
colleagues profess a desire to help the Nasdaq continue to multiply. I never was privy to a directive to
tout the impregnability of every new dot-com that came along. But many writers effectively opted to
play these roles by default in selecting the stories that were most readily available--profiles of start-ups
arranged by ubiquitous public relations consultants; astounding tales of technological discovery; stories
of the wealth being harvested from the market like the proverbial gold at the end of the rainbow.
You could sit at your desk in any newsroom in America in 1999 and simply wait for a press release to
arrive in your inbox or a wire story to be flagged by your assignment editor and soon find yourself
writing about something that no one had ever written before--the largest merger in history! The fastest
this! The slickest that! The path of least resistance turned journalists into boosters, while critical stories
entailed a path into the wilderness, with no eager sources and only piles of inscrutable documents.
Fundamentally, there is much to Schiffrin's point that most reporters took the easy route in the years
leading up to the financial crisis, which meant buying into the fantasy that justified ridiculously inflated
housing prices. The real estate bubble so dominated the era that it caused even serious reporters to
miss the underlying story: Tens of millions of Americans needed to use their houses as ATMs because
their pay checks no longer delivered enough money to finance even middle class aspirations--health care
when someone got sick, college for children, a functioning car to get to work. That is the broadest
context in which to critique the financial press. We mostly missed the breakdown in the American
middle class bargain, and so we did not appreciate how predatory lending effectively went mainstream.
The more immediate coverage of the crisis and its aftermath has occasioned conspiratorial talk that the
press oversold the fears of a systemic meltdown to help enable the Bush and Obama administrations to
deliver the taxpayer-financed bailouts for Wall Street. Some have suggested that the financial press
played a role much like the Washington press corps in the lead-up to the Iraq War, frightening the public
with apocalyptic visions that required intervention. (Schiffrin cites the pre-Iraq War coverage as a potent
example of coziness with sources yielding tainted journalism, though her critique is more systemic than
conspiratorial.)
As someone who sat inside one of the biggest newsrooms during the crisis, however, I reject the notion
that has taken root in some quarters that we were essentially active participant in a government-
directed con. Yes, there were good reasons to doubt the veracity of Bush's Treasury Secretary, Hank
Paulson, who had previously headed Goldman, as he warned in the fall of 2008 that the public either
had to hand over $700 billion to Wall Street or invite a meltdown. Those doubts (which were duly
reported at the time) have only intensified as the terms of the bailout have emerged, with Goldman
managing to secure a "backdoor bailout," through funds dispensed to the insurance firm American
International Group.
Continued investigation into the terms of the bailouts and how they came about is required. But the
idea that the press was effectively complicit in an Iraq-style ruse, trumping up the mushroom clouds to
justify the intervention, is misleading and unfair. The Bush administration doctored the intelligence to
create a false perception of threat in Iraq. But economists and business people were genuinely and
legitimately terrified of a potential repeat of the 1930s banking runs as major financial institutions
teetered toward collapse in the fall of 2008. Money was freezing up, laying waste to companies, sending
the unemployment rate soaring.
There turned out to be no weapons of mass destruction in Iraq, despite the bad journalism that insisted
otherwise--journalism that contributed to the stampede into the war. But you simply cannot say the
same about the financial consequences at risk as the Bush administration crafted the bailouts. Did the
trillions of dollars of interrelated and suddenly un-payable credit obligations constitute weapons of mass
destruction pointed at the global economy? Maybe, maybe not. There was simply no way to be sure,
and whatever the government did--wade in with a rescue, or stand back and watch--was bound to affect
the outcome.
Once the markets became ruled by fear, an expensive bailout was the price of preventing the worst.
That bad news simply had to be reported, whatever the consequences, even as we knew that the stories
themselves were adding to the fear.
Bad News provides little reason to imagine that the press will heroically prevent the next crisis, figuring
out where danger lies before everyone else does. Financial crises build over many years through the
fabric of the culture itself, warping expectations, altering the risks people and institutions are willing to
bear in pursuit of return on their money, while tilting the balance away from the intrusions of
government regulation. Journalists operate within our culture, and we absorb collective understandings.
Still, the basic critique of the book is instructive and worth contemplating. It boils down to most of us
not cultivating a wide enough circle of sources. For anyone who writes about finance, it is worth pausing
to consider where we regularly draw our information and then actively expanding that zone. It is worth
looking at how many of our sources are people whose job descriptions include having to talk to
reporters for a living. Because in this crisis, as in all such events, the warnings were never going to be
obtained from people paid to talk to the press, a group dominated by the special interests that benefit
from the status quo.
The real insights were waiting in harder to reach places, among people who typically have good reason
to avoid journalists--the ranks of mid-level managers inside predatory lending operations; those doing
due diligence inside banks that were buying a selling radioactive securities; the growing ranks of regular
families that could no longer pay the bills.
In my own view, and from my own experience, blaming the press for the financial crisis is like blaming
January for giving you a cold: You may have a point, but you better be prepared to dress warm again
next winter. In both the technology bubble and the run-up to the Iraq War, a much stronger case can be
made that shoddy reporting helped nurture disaster. Even by the everyday standards of journalism, bad
information was presented as fact. But in the case of the financial crisis, the system did not fail so much
as function according to the ordinary rules of engagement.
This is Schiffrin's fundamental point, and it amounts to bad news indeed. It would be so much more
convenient if we could blame it on a Judy Miller, pin it on one guy who got it wrong, then lance that boil
and feel better. But the problem goes right to heart of a press that simply reflects too few voices, often
missing out on the ones that have something important to tell us.