Did Financial Journalists Misjudge the Economic Downturn?

As commentators continue to explore the sources of the economic downturn in the United States, critics of financial news reporters as well as business journalists themselves are saying little was done to predict the current problem.

As early as late 2006, economists predicted that the housing bubble in the United States would burst, creating a sharp economic downturn, according to an April 5, 2009 Las Vegas Sun story. By 2007, the housing bubble had ruptured, producing the largest drop in home prices in the United States since the Great Depression.

Many critics have said that although journalists like Washington Post columnist Steve Pearlstein and New York Times columnist Paul Krugman warned about the larger repercussions of collapse in the subprime market over the last several years, most journalists did not fulfill their watchdog role effectively. The criticism of business news reporters has triggered a wave of self-evaluation among journalists and editors, some of whom believe that the industry fell prey to the same mistakes financial regulators did.

“We all failed,” CNBC on-air editor Charlie Gasparino said, according to an Oct. 6, 2008 Washington Post column by Howard Kurtz. “What we didn’t understand was that this was building up. We all bear responsibility to a certain extent.”

Stephen Engelberg, managing editor of investigative news organization ProPublica, said in a March 9, 2009 National Public Radio “Morning Edition” story, “I think in retrospect we in the journalism world had a very imperfect understanding of how the financial system fit together. When people said, ‘we can have a subprime crisis, and subprime loans are a relatively small part of the economy and don’t really connect to each other,’ we did not understand how the credit markets worked.”

Comments by former Federal Reserve Board Chairman Alan Greenspan suggest that he and other government officials did not see the financial crisis coming. In a CNBC documentary, “House of Cards,” which aired in February 2009, Greenspan said that he did not fully understand the details of complex securities on the market.

Greenspan also said last year that predicting the recession was impossible. Speaking before the House Committee on Oversight and Government Reform on Oct. 23, 2008, Greenspan said, “If all those extraordinarily capable people [working for the Federal Reserve] were unable to foresee the development of this critical problem … I think we have to ask ourselves, ‘why is that’? And the answer is that we’re not smart enough as people. We just cannot see events that far in advance. And unless we can, it’s very difficult to look back and say ‘why didn’t we catch something?’”

Some critics have said that the business media did nothing to publicize Wall Street financial woes because of a wrongheaded focus on publishing CEO profiles and touting lucrative investments.

In a Sept. 17, 2008 column on business news Web site MarketWatch.com, senior columnist Jon Friedman said he “cringed” at his fellow reporters while attending a press conference on Bank of America’s proposed acquisition of Merrill Lynch, an event he said should have been “another glaring sign of greed, stupidity and mismanagement on Wall Street.” Friedman wrote, “[T]he media were so polite and deferential to the two CEOs, they behaved as if the press conference were a victory lap for the financial services industry.”

A January/February 2009 Mother Jones story observed a shift in perspective by the business media to viewing its audience “as investors rather than citizens.” An investor-oriented perspective has resulted in an increase in specific categories of coverage, like mergers and acquisitions stories, which require financial journalists to cultivate Wall Street sources, the story said. Profiles of flashier CEOs, like former Citigroup chairman Sandy Weill, have also become typical for the business media, Mother Jones reported.

Wall Street Journal reporter Michael Hudson told Mother Jones, “The press were kind of prisoners of respectability. With exceptions, they really want official sources; they want official approval; they don’t want to be too out front. They do a good job after the fact, but not beforehand, when it counts.”

In a December/January 2009 American Journalism Review (AJR) story, Wall Street Journal Deputy Managing Editor Nikhil Deogun said “There is a tendency sometimes to get really caught up, particularly in personal finance journalism, to write about the latest product that a bank is selling.”

A group of journalists, economists, and scholars have challenged this approach, calling on CNBC to devote more resources to “watchdog journalism” and investigative financial reporting.

The group, called Fix CNBC, posted an open letter on its Web site, http://fixcnbc.com, on March 16, 2009, stating “Americans need CNBC to do strong, watchdog journalism — asking tough questions to Wall Street, debunking lies, and reporting the truth. Instead, CNBC has done PR for Wall Street. You’ve been so obsessed with getting ‘access’ to failed CEOs that you willfully passed on misinformation to the public for years, helping to get us into the economic crisis we face today. You screwed up badly. Don’t apologize — fix it!” As of mid-May, 22,333 people had signified their support for the online letter.

The letter was inspired, according to the group’s Web site, by “Daily Show” host Jon Stewart’s roast of CNBC show “Mad Money” host Jim Cramer on the March 13, 2009 episode. In his interview with Cramer, Stewart called for more accountability for average investors, saying that CNBC, while broadcasting the slogan “In Cramer We Trust,” failed to more aggressively investigate Wall Street and advised investors to keep their money in the market while it was crashing.

Fix CNBC’s members include Dean Baker, co-director of the Center for Economic and Policy Research, Lawrence Mishel, president of the Economic Policy Institute, Todd Gitlin, professor at Columbia University’s School of Journalism, and Christopher Hayes, Washington D.C. editor at The Nation magazine.

The Associated Press (AP) reported March 13, 2009 that CNBC had no comment on the petition drive. The network has defended its coverage, however, saying its programming reflects multiple perspectives, the AP reported.

AJR concluded that top business news outlets, including The Wall Street Journal, Fortune, and the business sections of The Washington Post and The New York Times, provided adequate warning of financial risks. Financial reporters, the AJR reported, have been writing about the housing bubble and unchecked growth in Fannie Mae and Freddie Mac for years. “The business media have done yeoman’s work during the past decade-plus to expose wrongdoing in corporate America,” the story said.

Other members of the business media blame the audience, saying that readers would not have welcomed more investigative reporting. Fortune magazine Managing Editor Andy Serwer said, according to Kurtz’s Oct. 6, 2008 Washington Post column, “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.”

Marcus Brauchli, executive editor of The Washington Post, told AJR “The notion that the business press wasn’t paying attention is wrong, and the assertion that we were asleep at the switch is wrong. … . But it is very hard to get the public’s attention for stories warning of complex financial risks in the middle of a roaring, populist bull market.”

The caliber of business reporting might also have fallen victim to layoffs at mainstream news outlets. The number of business journalists at print newspapers has fallen 25 percent since 2000, according to Chris Roush, director of the Carolina Business News Initiative at University of North Carolina-Chapel Hill, Mother Jones reported.

Dean Starkman, former reporter for The Wall Street Journal and author of the January/February 2009 Mother Jones story, said significant declines in advertising revenues and the shakier financial situation of the mainstream media has resulted in pressure to forgo investigative reporting, which uses valuable resources. “Time-consuming investigations were undertaken at the reporter’s own risk: If a lead didn’t pan out—no matter why—it hit your productivity numbers, putting your career in peril,” Starkman wrote. Starkman is currently managing editor of The Audit, an online critique of the financial journalism industry and part of the Columbia Journalism Review. He left The Wall Street Journal in 2004.

The Huffington Post announced March 29, 2009 that it is creating the Huffington Post Investigative Fund to support and facilitate investigative journalism, including stories about the economic crisis. “As the newspaper industry continues to contract, one of the most commonly voiced fears is that serious investigative journalism will be among the victims of the scaleback,” co-founder and Huffington Post Editor-in-Chief Arianna Huffington said in a March 29 story on the Huffington Post Web site. “Yet, given the multiple crises we are living through, investigative journalism is all the more important.”

– Amba Datta
Silha Research Assistant

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This page contains a single entry by cla published on October 12, 2009 11:23 AM.

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