Believe me, it’s no fun for a journalist to miss the big story, especially one staring him in the face. In 20-plus years writing about finance, I’ve muffed some juicy ones that were sitting right across a desk from me.
In the summer of 2002, as the Enron and WorldCom accounting scandals were hogging business headlines, I sat in the Birmingham, Ala., office of Richard Scrushy, CEO of HealthSouth (HLS), a big operator of physical-therapy centers that was fending off charges its finances were similarly suspect.
After being asked to wait for a half-hour in Scrushy’s gaudy sports-memorabilia room, I watched him produce a huge black binder, which he said included cash flow statements from each HealthSouth facility. He said he reviewed it line by line on a weekly call with the field. I asked for hard detail, he (probably) lied. I later spoke to fund managers and analysts, and wrote a piece in Barron's arguing the stock was unduly punished, the business a good value. The stock went up for a while — then collapsed as Scrushy was indicted for financial fraud, acquitted, then convicted and jailed for extortion and money laundering.
Nine years later, I visited Jon Corzine, former Goldman Sachs co-CEO, U.S. Senator and New Jersey governor, on the trading desk he liked to sit at after becoming chief of brokerage firm MF Global. In retrospect, the fact that Corzine was preoccupied with his quote screens while talking about his vision of raising the risk appetite of the firm should’ve been a clue his trading ambitions would outstrip his smallish firm’s financial wherewithal. I again wrote the markets were overreacting, the firm sound and well-positioned in a post-Lehman world.
The firm, of course, failed (even though Corzine’s bets on European debt paid off — just way too late), and MF and Corzine became synonymous with financial hubris and recklessness.
The stories that got away
It still hurts to recall these failures to grab the true, important, worrisome story within reach.
Media critic and author Dean Starkman wants the entire journalism profession to feel the sting of missing a far more vast and consequential “story,” of how fraudulent lenders and an opportunistic Wall Street created the greatest credit bubble and crash since the Great Depression over the course of the 2000s.
In his new book, “The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism,” Starkman argues that, by the early 2000s, the media had moved away from sweeping investigations of large, complex economic changes and systemic financial abuses. This, he says, left the industry ill-equipped to connect the dots between hard-sell loan pushers, mainstream banks and a Wall Street addicted to mortgages they packaged and sold to global investors under misleading terms.
A former Wall Street Journal reporter and now an editor at Columbia Journalism Review focused on the business press, Starkman tracks the shrinking of newsrooms and the reorientation of financial media toward “scoop” and “access” journalism centered on CEOs and investor concerns over the once-pervasive “accountability” and “public-service” mission of newspaper investigative units.
As Starkman notes in the attached video, CJR asked leading news outlets to submit their “best work” in warning about the housing bubble and related excesses and misbehavior in the financial sector. It found the press did “everything but take on the institutions that brought down the financial system.”
Starkman does a fine job tracing the evolution of business and economics coverage over the decades, highlighting a diminished appetite and commitment to long, messy, fact-based, confrontational exposes of economic trends. In the end, Starkman comes off as a general who pines for a lost journalistic army to replace the one that went “to war” during the credit bubble.
Yet ultimately it’s hard to shake the idea that hindsight and an idealized view of how the media can and do work animate Starkman’s analysis. A few points of pushback:
Can the media ever be expected to “get the goods on” or "blow the cover off” a societally transformative financial mania?
The psychology of manias are that they begin incrementally, based in some hard reality, then become institutionalized and amplified until they grow unsustainable. The frog is boiled to death, and the media is in that slowly heating water, too.
Did the press expose the junk-bond scandal in a timely way? The tech-stock bubble? The Japanese-asset insanity of the late-‘80s? Or the fraud-abetted 1920s stock-market boom, for that matter?
Not really. Intimations of danger are always there to be found. But without a document trail usually provided by regulators or law enforcement, the warnings tend to be episodic.
The nature of media coverage might not have been as different this time around as was the sheer magnitude of the asset-inflation and depth of opaque linkages of the financial relationships.
Just as the sportswriters on the beat didn’t “break” the endemic use of steroids in baseball, the financial press can be too close, too focused on the nuances of what’s “new” to take a step back and see the big picture with a naïve eye. Many of the stories that seemed big and devastating as the crisis raged would’ve elicited a shrug form those paying attention in calmer times.
Credit agencies are conflicted, you say? Always have been. Wall Street firms greedily sell whatever a client is willing to buy? No kidding.
It's not easy to identify a mass class of victims in real time. Trying to challenge the overheated mortgage machine at an earlier stage would have meant suggesting that many people getting mortgages, buying homes, selling them at a profit and spending happily in a growing economy were undeserving or inherently ill-equipped to understand what they were doing.
All true, in large part. But try to write that story in boom times and wait to see what the letters to the editor have to say about it.
All this matters mostly to the extent that it can inform how the media can reorient itself toward detecting incipient excesses, institutionalized misdealing and the like, in advance of whatever the next crisis might be.
I’d argue the media have spent the past few years fighting the last (lost) war: defaulting to a skeptical take on banks now that they’re healing and humbled, calling “bubble” at every lift in asset prices, seizing on any suggestion that Wall Street is pulling one over on the public.
As is clear in the video, Starkman is pessimistic on the direction the news business is now moving, probably rightly so. We’re seeing new online ventures – Vox Media, www.Fivethirtyeight.com, The Upshot from the New York Times – devoted to packaging and presenting data and information in digestible, attractive ways. There’s no move toward real reporting and collection of facts that someone or some institution wants kept secret, no storytelling to detail exactly how events played out and harm was done.
Unless that changes, the media might miss the big story even more unequivocally – and willingly – the next time around.