washingtonpost.com
The Press, a Few Dollars Short

By Howard Kurtz
Washington Post Staff Writer
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."

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.

"The journalism that's important to me is no longer possible. . . . It's time to stop standing behind our salaries, our bonuses and our pensions and stand up and say what needs to be said," he told the Knight Digital Media Center.

All right, back to the campaign: Sarah Palin finds herself on the cover of Newsweek, again, but with the most biased campaign headline I've ever seen: "Yes, she won the debate by not imploding. But governing requires knowledge, and mindless populism is just that -- mindless."

Doggone it, maybe her rhetoric is simplistic, misleading or irrelevant. But mindless? Here's the argument:

"Palin is on the ticket because she connects with everyday Americans. It is not shocking to learn that politics played a big role in the making of a presidential team (ticket-balancing to attract different constituencies has been with us at least since Andrew Jackson ran with John C. Calhoun, a man he later said he would like to kill). But that honest explanation of the rationale for her candidacy -- not her preparedness for office, but her personality and nascent maverickism in Alaska -- raises an important question, not only about this election but about democratic leadership. Do we want leaders who are everyday folks, or do we want leaders who u nderstand everyday folks? Therein lies an enormous difference, one that could decide the presidential election and, if McCain and Palin were to win, shape the governance of the nation . . .

"A key argument for Palin, in essence, is this: Washington and Wall Street are serving their own interests rather than those of the broad whole of the country, and the moment requires a vice president who will, Cincinnatus-like, help a new president come to the rescue. The problem with the argument is that Cincinnatus knew things. Palin sometimes seems an odd combination of Chauncey Gardiner from 'Being There' and Marge from 'Fargo.'

"Is this an elitist point of view? Perhaps, though it seems only reasonable and patriotic to hold candidates for high office to high standards."

Sure, which is why it's troubling that so much of the media was obsessed with the style of the debate rather than the substance of what Palin avoided or got wrong.

An unsympathetic view as well in Politico, from John Harris and Mike Allen:

"She got out alive, though there were white-knuckle moments along the way: questions that were answered with painfully obvious talking points that betrayed scant knowledge of the issue at hand and sometimes little relevance to the question that had been asked. But recent days have given John McCain's team little reason to suppose that not-that-bad is good enough.

"The Republican ticket's sliding polls and narrowing electoral map gave it a different imperative in Palin's showdown against Joe Biden. That was to alter the trajectory of the race in a way reminiscent of how Palin first enlivened Republicans -- it seems long ago now -- when she joined the ticket in late August. Absent new polling, there is little reason to think she cleared that bar in St. Louis.

"To the contrary, it is hard to count any objective measures by which Biden did not clearly win the encounter. She looked like she was trying to get people to take her seriously. He looked like he was running for vice president. His answers were more responsive to the questions, far more detailed and less rhetorical. On at least 10 occasions, Palin gave answers that were nonspecific, completely generic, pivoted away from the question at hand, or simply ignored it: on global warming, an Iraq exit strategy, Iran and Pakistan, Iranian diplomacy, Israel-Palestine (and a follow-up), the nuclear trigger, interventionism, Cheney's vice presidency and her own greatest weakness."

A big front-page rehash over the weekend in the New York Times examines the relationship between Obama and onetime terrorist William Ayers, only to conclude that the two men "do not appear to be close":

"Their relationship has become a touchstone for opponents of Mr. Obama, the Democratic senator, in his bid for the presidency. Video clips on YouTube, including a new advertisement that was broadcast on Friday, juxtapose Mr. Obama's face with the young Mr. Ayers or grainy shots of the bombings.

"In a televised interview last spring, Senator John McCain, Mr. Obama's Republican rival, asked, 'How can you countenance someone who was engaged in bombings that could have or did kill innocent people?'

"More recently, conservative critics who accuse Mr. Obama of a stealth radical agenda have asserted that he has misleadingly minimized his relationship with Mr. Ayers, whom the candidate has dismissed as 'a guy who lives in my neighborhood' and 'somebody who worked on education issues in Chicago that I know.' "

It's a fair issue, but also an old one. And Palin is suddenly a fan of the Times, the McCain campaign's least favorite newspaper:

"No more Ms. Nice Gal," reports the Chicago Tribune.

"Sarah Palin is pulling out the stops -- in the aftermath of the running mates' debate, the Republican vice presidential nominee today accused the Democratic candidate for president, Barack Obama, of 'palling around with terrorists.'

"She was talking about William Ayers, a professor of education at the University of Illinois in Chicago now who was one of the founders of the Weather Underground in the 1960s, a group that took credit for protest bombings during the Vietnam War including blasts at the Pentagon and Capitol.

"Obama, who was a child at the time, has in more recent years served on boards with Ayers, an education reformer now. And, while opponents have tried to suggest that Obama's association with the one-time radical is a problem, Obama and others have denounced the past activities of Ayers while praising his recent work."

The AP says Palin's attack "was unsubstantiated and carried a racially tinged subtext."

Palin, who now seems to talk exclusively to righty pundits, tells Bill Kristol that hitting Obama with Jeremiah Wright is perfectly legitimate -- but it's up to McCain.

Is the NYT training its guns on McCain? Here's what ombudsman Clark Hoyt found:

"Since late August, when the two presidential tickets were formed, The Times has published nine enterprise or investigative articles about McCain -- four on the front page -- taking tough, critical looks at some aspect of the candidate or his campaign. They included reports on the hasty, last-minute vetting of Palin, distortions or misstatements of fact in McCain's television ads, and his love of gambling and ties to the industry. In the same period, there have been four such pieces on Obama, one on the front page."

Aha! But if you use a longer time frame, "the Times has published more tough articles on Obama, 20, than on McCain, 13, since the beginning of last year."

Fred Barnes says Palin's performance in St. Louis was more meaningful than we realized:

"She may have passed two other tests as well. Did she once more energize the conservative base of the Republican party as she had when McCain picked her a month ago? Probably. And was her performance strong enough to change the direction of a campaign that has seen Barack Obama widening a lead over McCain in recent weeks? Maybe.

"For sure, she did one remarkable thing aside from handling Biden with ease. She undid the negative impression that had been created by her avoidance of most of the media and hardened when the two TV interviews went poorly. Her image was that of someone unqualified to be vice president and uninformed on major issues.

"Changing an image overnight is difficult. Ronald Reagan managed it when he debated President Jimmy Carter in 1980 and blew away the widespread notion that he was a warmonger. But I can't think of other examples of this, at least in presidential or veep debates."

Okay, but Karl Rove says Obama has reached 273 on the electoral map.

View all comments that have been posted about this article.

© 2008 The Washington Post Company