There are plenty of people to share the blame for the collapse of the nation's financial system. Greedy speculators, mortgage executives and banking chiefs; pliant credit rating agencies; and absentee government regulators come to mind.
But what about the self-described watchdogs in the media? As a consistent consumer of newspapers and TV news, and a frequent reader of magazines, I didn't have much sense that the nation's financial system could implode until it was starting to do so.
"I get this from friends, family, you know, 'How come you guys didn't see this coming?' " said Peter Coy, economics editor for BusinessWeek magazine. "How come all the journalists missed this big story?"
His answer: They didn't.
"Maybe you don't remember what we wrote," Coy said. "Maybe you didn't read what we wrote. But we were out there covering this stuff."
There is another school of thought, in this case articulated by former Wall Street Journal reporter Dean Starkman, who said he is an admirer of Coy. Starkman said, "You didn't tell us, or you didn't tell us nearly enough."
Cracking The Code
Lenders were making reckless mortgages, while financiers and corporate chieftains chased great profits by bundling those shaky mortgages together into incredibly complex investments. But they didn't comprehend the risk they were injecting into the nation's financial bloodstream. Former Federal Reserve Board Chairman Alan Greenspan recently told CNBC's David Faber he didn't understand how they worked either.
So how can journalists be expected to crack the code?
"If it absolutely has no responsibility whatsoever, then what's the point of reading it?" responded Starkman, writer and editor of a column on financial coverage for the Columbia Journalism Review. "Why be a journalist in the first place?"
Before dismissing this as an idle critique, consider the media's handling of other big, recent stories. The New York Times and CBS News' Lesley Stahl ended up offering mea culpas for failing to question claims that Saddam Hussein had weapons of mass destruction before the invasion of Iraq.
Hurricane Katrina? The New Orleans Times-Picayune ran a five-part front-page series that predicted pretty much what happened — three years before the storm. Its reporters kept steady with the issue. The press did its job — sounding the alarm.
Analyzing Media Performance
I tried to look at the media's performance in a couple of ways, inspired by suggestions from Starkman and others. I looked particularly at The New York Times, The Wall Street Journal, CNBC and the three big financial newsmagazines (Fortune, Forbes and BusinessWeek), though I don't pretend the review was completely comprehensive.
I found the weight of coverage fixated on executive suite intrigue and outsize corporate personalities, especially in the magazines' cover stories. In addition, news outlets, like the rest of the country, often focused on the vagaries of the stock market, as hedge funds and retirement funds seemed to soar in unison. Dissonant voices about the vulnerabilities of the system were heard on CNBC and in print, but they were largely swept aside as part of a greater conversation about how to keep investing.
"So, as long as the stock market is going up, people don't really pay attention to a lot of other things," says Gretchen Morgenson, a Pulitzer Prize-winning business columnist for The New York Times.
She has covered the slow-motion train wreck of the subprime mortgage market extensively, and she has also obsessed about executive compensation for years.
"The fact is many, many banks took on far too much risk in the interests of trying to juice their profits," Morgenson said. "Often one of the results of juiced profits is higher pay."
Morgenson said she began to piece together how those two dynamics interwove starting in 2007, thanks to her sources. Her ensuing coverage has understandably won wide praise.
Burying The Coverage
As problems with subprime mortgages started to erupt into open view, many reporters turned in impressive work. The collapse of two Bear Stearns hedge funds that held a lot of mortgage-backed securities in June 2007 helped to capture the attention of others.
But I thought it was also worth looking at the five years leading up to that point. (For what it's worth, most of the news outlets I reviewed had far more coverage of the relevant elements than NPR in that period.) The New York Times published more than 100 articles including some version of the terms "collateralized debt obligation" (CDOs) or "securitization," the compromised financial vehicles that plunged the financial system into trouble. Some articles hinted at trouble ahead. None of those cautionary stories landed on Page 1.
That's just one measure, but it's not a terrible one. In journalism, as in this whole tawdry tale, real estate is destiny. When a newspaper wants you to listen up, it slaps the story on the front page. And when it really wants your attention, its focus is relentless.
Wall Street Journal reporters Mark Whitehouse and Greg Ip wrote a front-page piece in November 2005 titled "Awash in Cash: Cheap Money, Growing Risks" about the hunt for new profits in these dangerous securitized investments, including real estate. Whitehouse wrote or helped write a few other front page stories laying out similar risks.
But these weren't common. I also reviewed front page coverage of the big financial firms: Bear Stearns, Citigroup, Goldman Sachs, JPMorgan, Merrill Lynch, and Morgan Stanley. Few pieces would have alerted readers to the grave risks the firms were taking in absorbing so many mortgage-backed investments.
Forbes and Fortune each had a half-dozen or so pieces that struck a slightly skeptical tone, recognizing that securities were often off balance sheets and hard to judge. Fortune had a bit more, such as a piece in 2002 about why those collateralized debt options might be good for the banks but bad for investors. But while there were some articles focusing on the troubles developing in the subprime lending market, and some particularly good work by reporter Bethany McLean, most references to the larger dangers were made in passing.
Much of the writing about these particular derivatives took on a gee-whiz tone. One Forbes story (admittedly back in August 2002) argued against regulating securitized investments with this line: "It is a credit to the skill of the financial engineers setting up these securities issuing entities that few have blown up."
Bet the authors of that piece would like to have that article back.
An Imperfect Understanding Of The Financial System
At BusinessWeek, there appears to have been more meat on the bone. Coy and his colleagues were sounding alarms as far back as 2002. In March 2003, Coy wrote, "Synthetic collateralized debt obligations — bond-like derivatives whose payouts fall when defaults rise — are extremely complex. And buyers such as pension funds may not understand fully the risks they're taking on."
Former New York Times Investigative Editor Steve Engleberg said the media watchdogs largely failed to bark for the same reason.
"I think in retrospect we in the journalism world had a very imperfect understanding of how the financial system fit together," said Engleberg, now managing editor of the investigative news outlet ProPublica. "When people said, 'We can have a subprime crisis, and subprime loans are a relatively small part of the economy and don't really connect to each other,' we did not understand how the credit markets worked."
Coy said his magazine sought to identify the holes in the system and explain them to readers. But he said people just didn't want to hear about those risks as the housing market boomed and stock prices rose. And yet toward the end of our interview, Coy also argued that the press — including BusinessWeek — should have sought more ways to get people to listen.
"If everything we had said and written came true then we might have expected some of this to have happen," Coy said. "But I think there was a failure of imagination among economists, policymakers, as well as journalists."
The nation's best news organizations didn't exactly fail to report on these financial weapons of mass destruction. Maybe they just didn't trust their own reporting enough to hammer it home — at least not to the point where people who were reading, and watching, got the message.