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By Dean Starkman
Columbia Journalism Review
05/19/2009
hat-tip to Thailandnotes.
By Dean Starkman
Columbia Journalism Review
05/19/2009
And so we undertook a project with a simple goal: to assess whether the business press, as it claims, provided the public with fair warning of looming dangers during the years when it could have made a difference.
I’m going to provide a sneak preview of our findings: the answer is no. The record shows that the press published its hardest-hitting investigations of lenders and Wall Street between 2000–2003, for reasons I will attempt to explain below, then lapsed into useful-but-not-sufficient consumer- and investor-oriented stories during the critical years of 2004–2006. Missing are investigative stories that confront directly powerful institutions about basic business practices while those institutions were still powerful. This is not a detail. This is the watchdog that didn’t bark.
To the contrary, the record is clogged with feature stories about banks (“Countrywide Writes Mortgages for the Masses,” WSJ, 12/21/04) and Wall Street firms (“Distinct Culture at Bear Stearns Helps It Surmount a Grim Market,” The New York Times, 3/28/03) that covered the central players in this drama but wrote about anything but abusive lending and how it was funded. Far from warnings, the message here was: “All clear.”
Finally, the press scrambled in late 2006 and especially early 2007 as the consequences of the institutionalized corruption of the financial system became apparent to one and all.
So the idea that the press did all it could, and the public just missed it, is not just untenable. It is also untrue.
We went into the project with the working hunch that something was wrong. This stems from our belief in journalism itself. As journalists, we have to believe that what we do is not entirely ineffectual and that it has some impact on the outcome of events. Otherwise, why bother? Given that the system failure here is absolute, whatever journalism did do, as a matter of logic, was insufficient.
But a second idea going in was that this “debate” about business press performance is not really a matter of opinion at all. Either the work is there, or it isn’t. Facts have a way of obliterating assumptions.
Our approach was fairly straightforward. We picked a date range of January 1, 2000 through June 30, 2007, with the idea that the early date would capture the entire housing bubble and the later date marked the period right after two Bear Stearns hedge funds collapsed very publicly and all warnings were moot.
We then came up with a common-sense list of the nine most influential business press outlets: The Wall Street Journal, The New York Times, the Los Angeles Times, The Washington Post, Bloomberg News, Financial Times, Fortune, Business Week, and Forbes. CNBC and other television outlets were excluded both for practical and substantive reasons. With the help of some colleagues, we searched the Factiva database for the names of important institutions—Bear Stearns, Countrywide, etc.—and matched them with search terms that seemed appropriate, such as “predatory lending,” “mortgage lending,” “securitization,” “collateralized debt obligations,” and the like.
We then asked the news outlets themselves to volunteer their best work during this period. Some institutions were more diligent than others, so, on that score, The New York Times might tend to be overrepresented, while The Washington Post, which declined to participate, might get shorted. Similarly, Bloomberg, the FT, and the Los Angeles Times posed technical challenges. But, while we won’t hesitate to differentiate between the relative performance of different outlets (and reporters, for that matter), the goal was to assess institutional performance, not who “won.” Nobody won.
The articles are in a spreadsheet, which can be found here. I was a staff writer at the Journal from 1996 through 2004, covering commercial real estate during the relevant period, and on contract at The Washington Post for 2005, covering white-collar crime; nothing of mine is on the list or deserves to be there. As of this writing the sheet contains 730 entries, but it remains open and we plan to add stories indefinitely as we come across them. Feel free to send your entry to editors@cjr.org. The database is meant to be used as a companion to this story. I hope it will be a reference for further research and that readers will use it to argue for or against CJR’s conclusions.
The list, then, was designed to capture all significant warning stories, not just some of them. And while 730 may seem like a lot of relevant stories, keep in mind the Journal alone published 220,000 stories during this period, so in a sense these were corks bobbing on a news Niagara. The list also includes as guideposts bits of context that we felt would give readers some sense of what was happening on the finance beat at the time (e.g. “Fed Assesses Citigroup Unit $70 Million in Loan Abuse,” NYT, 5/28/04). Sprinkled throughout are some of those rah-rah stories (“Mortgage Slump? Bring It On; Countrywide plans to grab more of the market as the industry consolidates,” BW, 12/15/03), and a tiny fraction of the run-of-the-mill stories about important, and guilty, institutions that in retrospect were so far from the salient point that one wishes we could have the space and the reporters’ time back (“Power Banking: Morgan Stanley Trades Energy Old-Fashioned Way: In Barrels . . .” WSJ, 3/2/05).
I’m going to provide a sneak preview of our findings: the answer is no. The record shows that the press published its hardest-hitting investigations of lenders and Wall Street between 2000–2003, for reasons I will attempt to explain below, then lapsed into useful-but-not-sufficient consumer- and investor-oriented stories during the critical years of 2004–2006. Missing are investigative stories that confront directly powerful institutions about basic business practices while those institutions were still powerful. This is not a detail. This is the watchdog that didn’t bark.
To the contrary, the record is clogged with feature stories about banks (“Countrywide Writes Mortgages for the Masses,” WSJ, 12/21/04) and Wall Street firms (“Distinct Culture at Bear Stearns Helps It Surmount a Grim Market,” The New York Times, 3/28/03) that covered the central players in this drama but wrote about anything but abusive lending and how it was funded. Far from warnings, the message here was: “All clear.”
Finally, the press scrambled in late 2006 and especially early 2007 as the consequences of the institutionalized corruption of the financial system became apparent to one and all.
So the idea that the press did all it could, and the public just missed it, is not just untenable. It is also untrue.
We went into the project with the working hunch that something was wrong. This stems from our belief in journalism itself. As journalists, we have to believe that what we do is not entirely ineffectual and that it has some impact on the outcome of events. Otherwise, why bother? Given that the system failure here is absolute, whatever journalism did do, as a matter of logic, was insufficient.
But a second idea going in was that this “debate” about business press performance is not really a matter of opinion at all. Either the work is there, or it isn’t. Facts have a way of obliterating assumptions.
Our approach was fairly straightforward. We picked a date range of January 1, 2000 through June 30, 2007, with the idea that the early date would capture the entire housing bubble and the later date marked the period right after two Bear Stearns hedge funds collapsed very publicly and all warnings were moot.
We then came up with a common-sense list of the nine most influential business press outlets: The Wall Street Journal, The New York Times, the Los Angeles Times, The Washington Post, Bloomberg News, Financial Times, Fortune, Business Week, and Forbes. CNBC and other television outlets were excluded both for practical and substantive reasons. With the help of some colleagues, we searched the Factiva database for the names of important institutions—Bear Stearns, Countrywide, etc.—and matched them with search terms that seemed appropriate, such as “predatory lending,” “mortgage lending,” “securitization,” “collateralized debt obligations,” and the like.
We then asked the news outlets themselves to volunteer their best work during this period. Some institutions were more diligent than others, so, on that score, The New York Times might tend to be overrepresented, while The Washington Post, which declined to participate, might get shorted. Similarly, Bloomberg, the FT, and the Los Angeles Times posed technical challenges. But, while we won’t hesitate to differentiate between the relative performance of different outlets (and reporters, for that matter), the goal was to assess institutional performance, not who “won.” Nobody won.
The articles are in a spreadsheet, which can be found here. I was a staff writer at the Journal from 1996 through 2004, covering commercial real estate during the relevant period, and on contract at The Washington Post for 2005, covering white-collar crime; nothing of mine is on the list or deserves to be there. As of this writing the sheet contains 730 entries, but it remains open and we plan to add stories indefinitely as we come across them. Feel free to send your entry to editors@cjr.org. The database is meant to be used as a companion to this story. I hope it will be a reference for further research and that readers will use it to argue for or against CJR’s conclusions.
The list, then, was designed to capture all significant warning stories, not just some of them. And while 730 may seem like a lot of relevant stories, keep in mind the Journal alone published 220,000 stories during this period, so in a sense these were corks bobbing on a news Niagara. The list also includes as guideposts bits of context that we felt would give readers some sense of what was happening on the finance beat at the time (e.g. “Fed Assesses Citigroup Unit $70 Million in Loan Abuse,” NYT, 5/28/04). Sprinkled throughout are some of those rah-rah stories (“Mortgage Slump? Bring It On; Countrywide plans to grab more of the market as the industry consolidates,” BW, 12/15/03), and a tiny fraction of the run-of-the-mill stories about important, and guilty, institutions that in retrospect were so far from the salient point that one wishes we could have the space and the reporters’ time back (“Power Banking: Morgan Stanley Trades Energy Old-Fashioned Way: In Barrels . . .” WSJ, 3/2/05).
What was missing—and needed—were more stories like the one that ran on February 4, 2005 in the Los Angeles Times by Mike Hudson and Scott Reckard: “Workers Say Lender Ran ‘Boiler Rooms.’ ”
This, CJR reader, was the real thing, a 3,220-word investigation that kicks in the door. It uses court documents and interviews with ex-employees and customers, nothing fancy, to expose Ameriquest, which at the time was one of the nation’s leading lenders, “Proud Sponsor of the American Dream” and the 2005 Super Bowl halftime show, and owned by the politically well-connected Roland Arnall, soon to be named U.S. ambassador to the Netherlands:
The Los Angeles Times, it’s worth pointing out, also probed Ameriquest’s attempts to co-opt critics (“Ameriquest’s Ties to Watchdog Group Are Tested,” 5/22/05), chronicled possible forgery at the lender (“Doubt is Cast on Loan Papers,” 3/28/05), and, crucially, explained how at least 20 percent of all subprime loans were going to prime borrowers, what I call the boiler-room effect (“More Homeowners With Good Credit Getting Stuck With Higher-Rate Loans,” 10/24/05). It turns out that the number actually reached more than 50 percent, The Wall Street Journal found in December 2007. These all ran at over two thousand words on A1 and helped catalyze a multistate investigation that forced Ameriquest into an embarrassing $325 million settlement the next year.
Clearly, then, such reporting was gettable.
Two years later, the Journal published an Ameriquest story (“Lender Lobbying Blitz Abetted Mortgage Mess,” 12/31/07), but by then, the lender was closed.
So let’s be clear: stories like the Los Angeles Times’s Ameriquest probes are the exceptions that prove the rule. And while handwringing about the bubble and pointing out defective mortgage products is hard, muckraking about specific, powerful institutions is harder, more useful, and more fun to read:
Great, right? If the muckraking story—a straight investigation aimed at the heart of the business model of an industry leader—was scarce in mortgage lending, it was rarer still on Wall Street’s end of the mortgage machine. As far as I can tell it was the unicorn of business coverage.
This, CJR reader, was the real thing, a 3,220-word investigation that kicks in the door. It uses court documents and interviews with ex-employees and customers, nothing fancy, to expose Ameriquest, which at the time was one of the nation’s leading lenders, “Proud Sponsor of the American Dream” and the 2005 Super Bowl halftime show, and owned by the politically well-connected Roland Arnall, soon to be named U.S. ambassador to the Netherlands:
Slugging down Red Bull caffeine drinks, sales agents would work the phones hour after hour, he said, trying to turn cold calls into lucrative “sub-prime” mortgages—high-cost loans made to people with spotty credit. The demands were relentless: One manager prowled the aisles between desks like “a little Hitler,” Bomchill said, hounding agents to make more calls and push more loans, bragging that he hired and fired people so fast that one worker would be cleaning out his desk as his replacement came through the door.
The Los Angeles Times, it’s worth pointing out, also probed Ameriquest’s attempts to co-opt critics (“Ameriquest’s Ties to Watchdog Group Are Tested,” 5/22/05), chronicled possible forgery at the lender (“Doubt is Cast on Loan Papers,” 3/28/05), and, crucially, explained how at least 20 percent of all subprime loans were going to prime borrowers, what I call the boiler-room effect (“More Homeowners With Good Credit Getting Stuck With Higher-Rate Loans,” 10/24/05). It turns out that the number actually reached more than 50 percent, The Wall Street Journal found in December 2007. These all ran at over two thousand words on A1 and helped catalyze a multistate investigation that forced Ameriquest into an embarrassing $325 million settlement the next year.
Clearly, then, such reporting was gettable.
Two years later, the Journal published an Ameriquest story (“Lender Lobbying Blitz Abetted Mortgage Mess,” 12/31/07), but by then, the lender was closed.
So let’s be clear: stories like the Los Angeles Times’s Ameriquest probes are the exceptions that prove the rule. And while handwringing about the bubble and pointing out defective mortgage products is hard, muckraking about specific, powerful institutions is harder, more useful, and more fun to read:
Lisa Taylor, a former loan agent at Ameriquest’s customer-retention office in Sacramento, said she witnessed documents being altered when she walked in on co-workers using a brightly lighted Coke machine as a tracing board, copying borrowers’ signatures on an unsigned piece of paper.
Great, right? If the muckraking story—a straight investigation aimed at the heart of the business model of an industry leader—was scarce in mortgage lending, it was rarer still on Wall Street’s end of the mortgage machine. As far as I can tell it was the unicorn of business coverage.