How 9,000 Business Reporters Blew The Mother Of All Meltdowns

Updated 6.5.2009

How could an army of business reporters blow the biggest story since The Great Depression? That's the musical question posed by former Wall Street Journal business and investigative reporter Dean Starkman, while he was doing a little freelancing this month for Mother Jones magazine.

Starkman said you may be surprised how many business editors blame you, dear reader.

"If we had written stories in late 2000 saying this whole thing's going to collapse," said Fortune managing editor Andy Serwer, "people would have said, 'Ha ha, maybe,' and gone about their business."

Ditto Marcus Brauchli, executive editor of the Washington Post: "I regret that when I was at the Wall Street Journal, we didn't keep the focus on some of these questions, including the possible moral hazard posed by the structure of Fannie Mae and Freddie Mac. But these are really difficult issues to convey to a popular audience."

Well, dudes, what did you offer us doofuses instead?

Edgy-yet-flattering profiles of Merrill Lynch's Stan O'Neal and Lehman Brothers' Dick Fuld...those pieces noting how Countrywide Financial's Angelo Mozilo liked to dress well...the Home Depot marketing stories...all the cheerleading and Flip That House fluff that diverted resources from the real task at hand.

Starkman slapped down Wall Street reporters for delivering personality-driven stories instead of deconstructing balance sheets or figuring out risk.

Coverage of Citigroup produced reams of profiles of its influential former chief, Sandy Weill, his successor, Chuck Prince, and his protege-turned-rival, Jaime Dimon, but precious little about Citigroup's role in bringing subprime lending from the mortgage industry's margins into the mainstream.

To be fair, the business press was stressed out by its own rounds of white-knuckle layoffs.

The disintegration of the financial media's own financial underpinnings could not have come at a worse time. Office politics became Byzantine, and productivity demands on the newsroom -- more, faster -- grew ever more pronounced. Time-consuming investigations were undertaken at the reporter's own risk. If a lead didn't pan out -- no matter why -- it hit your productivity numbers, putting your career in peril.

Okay, so dead-tree journalism was partly to blame. But didn't regulators also fail to do their jobs?

Back in the 1980s, a great deal of tough Wall Street coverage was driven by the aggressive work of prosecutors and the Securities and Exchange Commission. But then came the Clinton-era push toward deregulation that reached its extreme during the Bush administration, as the federal government unceremoniously pulled the finance cops off the beat. For a time, Eliot Spitzer filled the void with his aggressive prosecution of Wall Street misdeeds, but for the most part, covering financial corruption without regulators was like trying to clap with one hand.

Let me get this straight. The only person patrolling Wall Street was Eliot Spitzer? But wasn't he preoccupied with another kind of street activity? And while we're on the subject of riveting television, I recall watching Lehman employees carrying out boxes of records, a spectacle that pushed Bloomberg columnist Jonathan Weil over the edge:

"Is there anybody left in the government with a pulse? Where's the yellow police tape? How about a cease-and-desist order to prevent document destruction? Can anyone give me a good reason why Lehman offices shouldn't be treated as a crime scene now?"

Can anyone give me a good reason why Bernie Madoff is still livin' la vida loca in a penthouse? Why Merill Lynch is getting away (so far) with secretly handing out bonuses?

"It's true the federal regulators disappeared. But there were lots of state regulators who were going after this in a big way, lots of people on the ground, lawyers, consumer advocates, scholars, who saw what was happening, and the press didn't give them much attention," said former WSJ reporter Michael Hudson. Hudson is now with the Center for Responsible Lending.

Some Mother Jones readers included Starkman on their dishonor roll:

How could you possibly write a story about MSM reporters who missed the big collapse, and ignore all the bloggers that warned repeatedly about the coming misadventures in real estate, credit, derivatives, and finance? That's the real takeaway from this era -- traditional journalism left a vacuum, one that was quickly filled.

-- Barry Ritholtz, 2/11/2009, 5:53 PM

What Dean [Starkman] forgets is that he blew it as well. A few of us did write tough stories about Wall Street. I was there, and I can tell you Dean wasn't one of them.

-- Charles Gasparino, 2/11/2009, 8:38 PM

Some Mother Jones readers accused MSM business writers of now acting as apologists for the culprits:

I've lost track of the articles I've read attempting to "explain" how so many bright people made such a bad mistake. The upshot is that since everybody was doing it, and nobody wanted to get left behind, it was all perfectly normal, and nobody should be held accountable. Except that people's retirement accounts were wiped out. People are losing their homes, and now their jobs.

-- Paul (no last name provided), 2/12/2009, 1:31 PM

To read Dean Starkman's full story in Mother Jones, click here.

To read in-depth reporting on the pros and cons of the new economic stimulus package designed to fix this mess, click on.... click on...

Who am I kidding? I can't think anyone in the business media who is on top of this story, can you?

* * *

Update 6.5.2009

Yesterday Dean Starkman told me that the question of whether or not the business press was on top of the financial meltdown story was degenerating into a schoolyard spitting contest: "You missed it!" "Did not."

Who's right? To answer that question would require reading "nearly the entire record of what was printed on the topics of lending and Wall Street in several outlets over many years -- hundreds and hundreds of stories," said Starkman, who then proceeded to do exactly that. "Well, somebody had to," he said.

You can read Starkman's full report here. His database can be found here.

 

Follow Diane Tucker on Twitter: www.twitter.com/dianetucker

Comments

[Diane Tucker - Huffpost Blogger]

Thanks to everyone who wrote recommending financial reporter Bethany McLean's excellent interview on PBS. Here's the link:

http://www.pbs.org/now/shows/505/index.html

[Tamoshanter]

Bethany is a target of that guy Patrick Byrne who you mentioned in one of your other posts, through his hired helper Judd Bagley who replied to one of your comments.

You've got to print this: it is really rich. Judd runs a website attacking reporters who don't like Byrne. He's not hot on Bethany because of a story she did in 2005, which you can find here. http://money.cnn.com/magazines/fortune/fortune_archive/2005/11/14/8360711/index.htm

So, vengeance being tastiest when cold, recently Judd runs a series of blogs attacking Bethany and making crazy allegations, mostly reckless and false innuendo.

If we had an SEC that wasn't brain dead, corporate officials who attack critics in the media and analyst community would be held accountable for their actions.

[Judd Bagley]

Innuendo, my arse. I have the emails. http://www.deepcapture.com/bethany-mclean/

Show me a single "crazy allegation" and I'll remove it.

[NABNYC]

They didn't miss the story. They just chose not to cover it. Nobody should be fooled by this cover-up we're seeing going on today by united interests that want to stop any investigations or (God forbid) prosecutions. Asset seizures. Imprisonment. So suddenly the same people who have spent years telling us they are the smartest people in the world -- today they all say they're just stupid, didn't understand, never saw it coming. Everyone on Wall Street, everyone in Congress who took hundreds of millions of dollars from Wall Street, everyone in the "financial" media who got rich: they're all just stupid, according to them.

But here's the problem: if they're so stupid, how come they got all the money?

The public is rightly enraged and wants answers: where's the money, where did they put it. We want the justice department to do something: go get it back. All of those financial entities that were cleaning up during the Bush years brought hundreds of millions, even billions in earnings through the front door and right out the back door to the insider's secret private equity funds, off-shore. That's why their businesses failed: they looted them, just like they did to our country. See http://NABNYC.blogspot.com for a discussion of PBS's "Inside The Meltdown" Misses The Point: It's A Crime Story, Not A Human Interest Fluff Piece"; and also "Jump! Jump! Jump!"

[cindysundancer]

Washington Post business columnist Steven Pearlstein wrote in October of 2007 that the financial sytem was a "house of cards." Between that and the worry over peak oil, I pulled my little pot of money out of the stock market.
Most of the talking heads on the tube are more concerned about "making nice" and keeping their meal ticket than investigative reporting or truth telling.
There are a few prophetic voices out there in media land, (anyone listening carefully to NPR in 2003 or 2004 knew Iraq would be no cakewalk) but they are mostly drowned out by a cacophony of
amiable and attractive cheerleaders.

[Diane Tucker - Huffpost Blogger]

You have good instincts. If only the same could be said for U.S. economists. Here's an except from Deborah Solomon's 10/31/08 NYT interview with James K. Galbraith, which shows that journalists weren't the only ones to miss the big story:

Solomon: There are at least 15,000 professional economists in this country, and you're saying only two or three of them foresaw the mortgage crisis?

Galbraith: Ten or twelve would be closer than two or three.

Solomon: What does that say about the field of economics, which claims to be a science?

Galbraith: It's an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

[dadw5boys]

Lehams was allowed to fail to hide the crimes !!!!!!!!!

[Shawn Brandom]

A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

At the time, these journalists were working at major news organizations like The Wall Street Journal, The New York Times, and CNBC, but most shared a common history: they had been founding editors or top employees of TheStreet.com, a financial news website. The few who had not worked for TheStreet.com were close colleagues of ....

http://www.deepcapture.com/email-exposes-short-seller-plot-to-destroy-a-public-company/

[Diane Tucker - Huffpost Blogger]

The comment above by "Shawn Brandom" is interesting but not credible. These are actually the first three paragraphs of a story written by Mark Mitchell, a journalist who has been criticized for being the shill of Overstock.com CEO Patrick Byrne. Here is the link:

http://garyweiss.blogspot.com/2008/04/mark-mitchell-mystery-solved.html

At first I was going to delete "Brandom's" comment. But I'm leaving it up because it illustrates a growing problem in financial reporting: who can you trust?

[AZBunny]

It's not just a question of who you can trust in "financial" reporting.
It's a question of who you can trust in reporting period.

A couple of years ago, I wasn't liking the way things were looking for the country financially so I sat my husband down and showed him what I was seeing. I was scared BUT I wanted to make sure I wasn't losing my mind because of a hormone thing or something.

We pulled all our money out of the stock market, BUT I was not convinced I was doing the right thing since nobody else was really sending off alarm bells.

Needless to say I wish I had trusted myself more and went the extra step of selling our house also (which I seriously considered) before the price plummeted. But when you have all these "experts" telling you everything is okay and you're just an "ordinary" person.............

As it is I can be grateful that we bought our house 10 years ago and as of now we are not upside down on the mortgage because we were smart enough not to tap into the equity but I'm fearful we haven't seen the bottom of the real estate meltdown yet.

[badwalrus]

As AZ Bunny succinctly put it; "It's a question of who you can trust in reporting period." I'll concur with her and add that blogging must be scrutinized carefully for content and motive as well, unfortunately.

And that leads me to you, Diane. Just what is it about shilling that fascinates you more than the profound subject matter inspiring it? I'm not defending it, and I'll even say that I believe it to be ill-advised, but I do at least understand that when you are forced to wrestle with pigs all parties get dirty. It's not really that complicated...

What is complicated, though (and important), is the story of Deep Capture. As a former ceo of a pubco myself I tend to believe Byrne's claims, especially given the evidence that he and others provide. Researching it has lead me to your posts. And I have to say, you don't appear to get it.

[Mikecroft]

Most of the time between 1995 and 2006, being a financial writer was like being a TV weather bunny in Los Angeles. The weather is so good most days that it really doesn’t matter what you forecast. And with so many reporters drinking the same Wall Street Kool-Aid, its no wonder so many missed the Big One. Too bad we didn’t have any reporters with the instincts of Bernard Baruch, the financier from the first part of the 20th century. A few months before the Crash of 1929, Bernard was getting his shoes shined when his shoeshine guy began giving him stock tips. Right after that revelation, Bernard took his millions out of the market and rode out the Great Depression just fine. In recent years, too many reporters were shoeshine shillers for Wall Street, and we should have done like Baruch and cashed out.

[Flarbytown]

Americans have largely been sold a bill of goods. Pensions disappeared for most people, only to be replaced by 401(k) plans. The peddlers of those plans show nicely configured charts and graphs to show you that if you'd put your money in the stock market in 1945, you'd be far better off than if you'd put it in a savings account, BASED ON HISTORICAL PERSPECTIVE. So most Americans bought into this fallacy, and the idea that investment trumps hard work became the rallying cry. Ride out the lows and the stock will come up! Diversify, and you'll be okay. Except if whole industries go belly up, and your "diversified" stock becomes worthless, leaving you with little or nothing.

As for the inability of reporters to tell a story from a press release, well, that's another matter. Most "journalists" should sue their colleges for malpractice.

[ILibertine]

Everyone's having trouble with this matter: and it is called Hindsight.

The "how" is the same as how did everyone miss 9/11 before the fact.
And the reason is that it is difficult to sell a Prius when seemingly everyone wants a Hummer.

Although a few were predicting a great reckoning long in advance of the fact, it was too gloomy a story for mass media to sell before the financial guillotine's axe began to fall upon the heads of opportunists, investors, then everyone else. Just as predictions of terrorist attacks were too gloomy to warrant full-scale preparations or serious handling of signals before the disasterous fact; or the implications of oil dependency and corporate avarice, nothing unique to the recent past, got in everyone's face with $3+/gallon gas, once again caught the population, the government and the media with their collective pants down.

The course of human events seems to be that until something blows up, one way or another, predictions are just boring stories interrupting the Super Bowl and Homer Simpson-level TV, or their historic equivalent (wenching at a tavern or what have you).

[Cubancoffee]

Credit where credit is due, Diane. SOME reporters were crying in the wilderness. (From the Mother Jones article: There have been exceptions—a preliminary list would include Shawn Tully at Fortune, John Hechinger and others at the Journal, Mara Der Hovanesian at BusinessWeek, Diana Henriques and others at the New York Times, and Scott Reckard at the LA Times.) They tried to tell us, but we weren't listening.

[Diane Tucker - Huffpost Blogger]

Thanks for giving credit where credit is due. I'm sure there are others, and I'd love to hear from them. Could it be they're not reading Huffington Post?

[Rule Of Law]

Do you ever read the headlines on the Business section of Yahoo or your local paper that explain why the market did whatever it did (up or down-tough ain't it?) the day before?

Those writers should all get Pulitzer prizes for creative writing. The talent it takes to invent some new reason each day, why, it's astounding! And the fact that on any given two days that the reasons given are totally contradictory doesn't bother them a bit.

"Market Soared Tuesday on Positive Job News!"

Next day:

"Stocks Retreat On Employment Fears"

IT'S NOT REPORTING! It's not investigative. It is not journalism. It is stenography 1A!

[OhioObamaVoter]

Such a slow moving thread and I found it to be a great topic.

[Diane Tucker - Huffpost Blogger]

Ditto! And thanks for commenting!

[OhioObamaVoter]

This imperative subject has not, nor cannot, be tackled thoroughly enough! Your piece was thought provoking and a great place to start. The title "reporter" has become practically worthless as the "reporting" is most worthless and hardly, if ever, investigative.

[truthynesslover]

They missed ENRON too remember?

[Ryan Lobo]

Talk about missing Enron: I think sometime in 1998/1999 Fortune magazine ran a cover story extolling Enrons progress from sleep energy company to an energy "trader". In fact Ken Lay and Jeff Skilling wer given special mention. And of course Enron always made it to the top 5 of the Fortune 500! I have never read Fortune after 2000!

[SilviaMaria]

I am not an economist, but I always thought there was something not right about the Dot.Com bubble; how can a company go public with practically no clients, borrowed money, bad management, etc. We all know what happened to that bubble.

Then the house market, way back in 1999-2000 the house prices began to climb, but salaries stay the same or changed very little. You will run into trouble if you make $60,000 dollars a year and a have a $400,000 dollar house; or $30,000 and $200,000 dollar house. House market was inflated because it benefited lenders and brokers but not consumers; I could see this bubble exploding. I am no talking here about interest rates.

Was I the only one who was able to see these two bubble troubles and the financial disaster?

[Dean Billing]

Main Stream Media says it all ... they will only report what the main stream in this country wants reported and what the main stream public wants to hear. MSM is homogeneous, they all look alike, sound alike and act alike. There is no alternative to what they speak. The sheeple love brands, all it takes is a brand to remove you or your idea from the conversation. Communist, socialist, liberal, tree hugger, anit-semitic. Any of these brands will remove you from the conversation, instantly. There were plenty of people that spoke up, Mike Whitney, Nassim Taleb and Nouriel Rubini to name a few. Nouriel Rubini was branded Dr. Doom and that ended his conversation. To this day, he is treated with contempt when the MSM deigns to interview him. I have seen him on CNBC, the cheerleaders of the gambling casino known as the stock market, and the contempt for his ideas is thinly veiled at best. We ignore the alternate views at our peril.

[Diane Tucker - Huffpost Blogger]

Hi Dean,

"We ignore alternate views at our peril." I agree. Let's run it to ground: when did America lose its stomach for alternative views? During the Dubya era? Earlier?

[Dean Billing]

Much earlier, McCarthy era proved that you could label a person as subversive and they became a non-person or worse, or an idea as undebatable. You can always label a person as anti-semitic and any views that the person has about Israel or the US policy towards Israel is undebatable. The Reagan era made government the problem and "liberals" and the "liberal media" as the enemy. Kind of ironic that the NY Times is "the liberal media" and William Kristol and David Brooks are prominent columnists. It also brought us trickle down economics which now clearly never worked, but you can't question it, the Republican's in congress still demand tax cuts that favor the wealthy to pull us out of the economic mess that tax cuts got us into, but the media still doesn't question it.

[twofish]

Americans have never wanted to hear anything that contradicts the notion that they will be rich tomorrow, so they have to jigger the law and society to benefit the rich today.

[h0tr0d]

Welcome to the age of no accountability. Whether it be the president, journalists, republicans, democrats or joe the plumber....nobody seems to be accountable anymore. Let's hope Obama can change that.

[Dean Billing]

Obama will change nothing. He has packed his administration with the insiders that brought us this debacle, Larry Summers, Robert Rubin, Tim Geitner. After Geitner's first major performance that turned into a debacle, it is clear that the only objective of this administration is to make the banks that created this mess whole again so we can get our false prosperity back. If Obama had brought the likes of Rubini or Taleb into the administration and locked up the crooks, maybe we would get the change everyone wants to believe in.