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

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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.