The Press, a Few Dollars Short
Monday, October 6, 2008; 10:16 AM
Charlie Gasparino was so anxious to get on the air that he phoned in to CNBC, rather than walking to the studio, to report that nervous federal authorities were considering a bailout of the insurance giant AIG.
"I was sweating through my underwear. That was scary," the correspondent says of his mid-September story, which wasn't confirmed until that night. When his colleagues said on the air that their own sources were expecting AIG to go bankrupt instead, "that freaked me out."
The stakes are enormous in a fast-moving crisis where the traditional concern about journalists causing a run on the bank is hardly a theoretical danger. But as news organizations chase exclusives about the Wall Street meltdown, they also are grappling with a troubling question: Why didn't they see this coming?
"We all failed," says Gasparino, a former Wall Street Journal and Newsweek reporter. "What we didn't understand was that this was building up. We all bear responsibility to a certain extent."
The shaky house of financial cards that has come tumbling down was erected largely in public view: overextended investment banks, risky practices by Fannie Mae and Freddie Mac, exotic mortgage instruments that became part of a shadow banking system. But while these were conveyed in incremental stories -- and a few whistle-blowing columns -- the business press never conveyed a real sense of alarm until institutions began to collapse.
"Did we not accent that enough? Put it above the fold, or on the cover of Fortune, or lead off the television shows?" asks Fortune Managing Editor Andy Serwer. "Yeah, that's probably true." At the same time, Serwer says, "if we had written stories in late 2000 saying this whole thing's going to collapse, people would have said, 'Ha ha, maybe,' and gone about their business."
After being burned by years of cheerleading before the dot-com collapse, the media warned repeatedly that the surge in housing prices might turn out to be a bubble. But the emphasis was generally on the potential toll on homeowners, not the banks that would be left holding bagfuls of bad loans. As in the savings and loan scandal of the late 1980s, the press was a day late and several dollars short.
Marcus Brauchli, The Washington Post's new executive editor, who was the Journal's top editor until last spring, says no policymaker who followed those papers, the New York Times, the Financial Times and CNBC could have been unaware of the explosive growth of derivatives that embedded debt across the financial system.
Still, he says: "I regret that when I was at the 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. These are really difficult issues to convey to a popular audience. . . . You do have an obligation as a journalist to push important issues into the public consciousness. We also have to remember you're pushing against a powerful force, which is greed."
It is not easy for journalists to take on the masters of the financial universe, especially when the market is going up and everyone is happy. Franklin Raines, then the chief executive of Fannie Mae -- which was seized by the government last month -- complained to Brauchli about critical Journal stories in 2001. Gasparino, who also broke the news about the Treasury bailout plan, says debt-rating agencies cried foul with his Journal bosses when he challenged their approach (some of today's now-toxic loans, he notes, were rated AAA).
PBS's David Brancaccio says that "we journalists have had a long history with accepting what the smart people hand down to us, especially on complicated stuff. . . . When I would cover these very issues about problems with regulation, problems with 'is this a disaster waiting to happen?' people would say, 'Well, young man, you don't have an MBA like I do. Trust us. We went to business school.' "
Post business columnist Steven Pearlstein, who won a Pulitzer Prize for columns last year warning about the magnitude of the coming crisis, says he was often dismissed as a pro-regulation zealot or gadfly critic of Alan Greenspan. "The business press tends to get in with the people that they cover," he told me in a CNN interview. "They get in the bubble that is Wall Street, just like political reporters get in the bubble that is the White House and the traveling press of the campaign . . . and they don't see the obvious things."