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The Press, a Few Dollars Short
Beyond Wall Street, what about Washington? Most news organizations fell short in reporting on the lax federal regulation that everyone -- even the Bush administration -- now admits was at the root of the problem.
Christopher Cox, chairman of the Securities and Exchange Commission, told the New York Times last month that he belatedly shut down a "fundamentally flawed" program that relied on investment banks to police themselves, because "voluntary regulation does not work." Yet major newspapers did not report on the voluntary program's adoption in 2004, which the Times now trumpets as a turning point. (The Journal ran an eight-paragraph piece on Page C4.)
The media also have a tendency to lionize CEOs and turn them into celebrities. A 2006 Fortune piece by Serwer was headlined "The Improbable Power Broker: How Dick Fuld transformed Lehman from Wall street also-ran to super-hot machine." Fuld led Lehman Bros. into bankruptcy last month.
There were a few other prescient voices. In February, Times columnist Gretchen Morgenson wrote that the market for "unregulated" credit swaps had ballooned from $900 billion to $45 trillion-- twice the size of the U.S. stock market -- and a market hiccup "could set off a chain reaction of losses at financial institutions" that would make it even harder for borrowers to get loans.
Even in the 401(k) age, hard-core business coverage tends to be ghettoized. Subjects that directly affect a broad audience, such as home prices, are covered obsessively. But the arcana of credit default swaps and collateralized debt obligations -- limited to financial pages and financial shows -- is what caused the system to buckle.
"It wasn't for lack of courage that the media didn't pursue this stuff," Brauchli says. "Ultimately it's not we who are charged with taking away the punch bowl."
But journalists are reluctant to target those who are guzzling the punch: the overstretched folks who bought houses they couldn't afford and second homes they wanted to flip, all based on the presumption of endlessly rising prices. " 'Blame the people' is a harder story to write," Serwer says. "There's plenty of greed to go around. Everyone's complicit."
Financial journalists face a difficult balancing act. Penetrating the finances of corrupt companies, such as Enron, and crooked accountants, such as Arthur Andersen, is daunting enough. If these journalists shout too loudly, they can be accused of scaremongering and blamed for torpedoing the stock of outwardly healthy companies.
But does the problem run deeper than that? Gasparino recalls interviewing for a financial magazine job and having the editor warn him that he couldn't sell magazines "with a bucket of crap on the cover."
"People like it when the stock market goes up," Gasparino says. "There is a mindset at newspapers and magazines that shies away from negative coverage."
Taking a Stand
Many editors these days gamely insist that they can put out high-quality newspapers with decimated staffs.
But when Stephen Smith announced last week that the Spokane, Wash., Spokesman-Review was cutting one-quarter of its editorial staff, he took a different route: He quit.