[As a courtesy to our guests, please keep comments to the book. Please take other conversations to a previous thread. - bev]
Cindy Kouril, Host:
Bad News is a collection of essays edited by our guest today, Anya Schiffrin. It features chapters by Ms. Schiffrin, as well as by Nobel Laureate Joe Stiglitz, Columbia Journalism Review’s Dean Starkman, HuffPo Business Editor Peter Goodman, and others in the field from both sides of the Atlantic Ocean.
The book examines the financial press’s version of the Veal Pen, or what Stiglitz calls “cognitive capture.” Just like the political reporters inside the Beltway have become slaves to access, Financial and economic journalists are just as dependent on their sources in industry and government for information and feel the need to keep those sources happy to avoid being cut off from the information flow that is the lifeblood of their production model.
Further, the book raises a question about the actual subject matter competence of some who cover this beat. Evidently, some publications hire reporters with no training in economics, forensic accounting, or gosh, finance to cover the financial beat and assess the statements and actions of superbly well-educated quants and sophisticated Masters of the Universe. The book reveals that, for some reason, the financial desk is considered a career dead-end, and therefore you won’t find up and coming editors with growing power manning that position. So, you have the blind leading the blind in deciding what to cover and how to analyze it.
This disturbs me. I know from background investigating and prosecuting white collar crime that there is a huge amount of information publicly available, if you know where to look and how to read it, making it possible for you to fit the puzzle pieces together. It’s hard drudgery though and hardly a task for a recent college grad biding his time until he can get a job covering sports. Drilling down through a certified financial statement to locate all the gems of information tucked away in the footnotes and “exceptions” takes a special kind of masochistic curiosity, you have to love the puzzle.
Some reporters did get it right well before the financial collapse and the book is replete with examples of specific individuals and stories that were so spot on their authors look prescient. However, these standout articles and television documentaries, no matter how well done, were drowned out in a white noise ocean of puff pieces profiling MOTU, “horse race” stories about which stock was up and which down, and stories extolling the new business models and focusing on market share rather than the sustainability of the business model swallowing up that market.
In order to break through the public consciousness and become conventional wisdom, a story must reach a critical mass of repetition of both depth (how many times the same outlet repeats it day after day) and breadth (how many different outlets repeat it). Despite the few excellent exposés and analytical pieces that were produced before and after the collapse, none of them has broken through that critical mass; none of these stories has grown legs. Still.
Which brings me to a point, the book is a soul-searching backward look at what went wrong in reporting on the financial crisis, which ain’t over yet folks. As far as I can tell, it’s still going wrong and the financial press and front page press are still missing the boat and failing to hold MOTU and government officials’ feet to the fire. They are still missing huge stories.
The last chapter of the book does a good job of talking about the failures to accurately report on the following stories:
-Regulation – normally you would expect increased regulation to come from the collapse and accountability for regulators who were asleep at the switch.
-Debunking the “efficient market” canard – yet politicians of both parties continue to spout it like gospel without any skepticism or fact-based pushback from the press.
-the Social Security is Bankrupt lie – Social Security has not caused or contributed one dime to the deficit and won’t for decades to come, returning SS taxes to cover 90% of wages would also return to surplus status.
-Bailing out the banks will create jobs – no, bailing out the consumer will increase demand for products which will, in turn, create jobs.
There are more examples in the book of stories not being covered, being inaccurately covered, or just being made up bovine fertilizer.
I’d like to add another to the list of huge story not being told: Where are the criminal prosecutions?
In the 1980’s during the Savings & Loan crisis, the Department of Justice made it a priority to investigate and prosecute those who embezzled, lied, made false filings, etc., in connection with abusing their Savings & Loans. DOJ prosecuted the worst of the worst, then the slightly less worse, and then the somewhat less worst started pleading guilty and looking for plea deals, finally you get down to the not-so-very culpable and you deal with them with fines, administrative and civil penalties, and new regulations. It works that way with any systemic white collar crime, whether it’s the mafia in the construction or waste management industries or price fixing in the fish market; this is standard operating procedure.
Yet the 50 state Attorneys General and the DOJ are putting out term sheets for a civil settlement, which is not only laughable in its mercy, but some fear it will convey criminal immunity on the worst of the worst. Not only that, but the US Attorneys have been given prosecution priorities that do nothing to provide accountability for the crisis, insider trading (rich people ripping off other rich people or rich institutions) and criminalizing Intellectual Property violations.
I’m sorry, but a hedge fund victimized by somebody’s insider trading has the ability to hire very competent big law counsel to vindicate its rights. Likewise DuPont does not need the taxpayer funded lawyers to pay for the defense of its rights to Kevlar. The balance of resources between victim and offender is pretty equal and the civil penalties can make the victim whole and sometimes more than whole.
You know where there is NOT a balance of resources between victim and offender? Mortgage origination fraud cases where people who qualified for prime rates were put into subprime mortgages, or where their names were forged on documents, or where their true financial information was masked with WiteOut and new numbers written in to get them a mortgage they could not possible repay. You know where else? Mortgage foreclosure fraud where homes that don’t have mortgages are being falsely foreclosed on, where perjuries affidavits are piling up in courthouses all over the country, where perjuries assignments and allonges are being fabricated after the fact. Where else? All the material false statements made by executives at Too Big To Fail banks and insurance companies and places like Lehman Brothers and Bear Stearns outright lying about their financial condition and inducing investors to act on those lies.
Where are the prosecutions? Why are members of the press not demanding answers from US Attorneys, State Attorneys General and even local DA’s—think of all those false filings in local courthouses. Where are the Grand Jury investigations? The criminal investigations task forces?
Maybe the reasons and analysis in Bad News have exposed insurmountable systemic problems in financial and economic reporting, or maybe the reporters and editors on this beat have not yet internalized the lessons to be found in this book. If the latter, I hope they catch on in time.