Is the Press Too Big to Fail?
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On March 23, 2008, as the bubble was finally bursting, Times reporters Nelson Schwartz and Julie Creswell noted that “during the late 1990s, Wall Street fought bitterly against any attempt to regulate the emerging derivatives market.” They went on:
“A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.”
“Little-noticed” indeed. According to Lexis-Nexis, not a single substantive mention of this law appeared in the Times that year. On October 1, 2000, Washington Post writer Jerry Knight did note ruefully, “What's fascinating about the policy debate is the agreement on the guiding principle: The government should not stand in the way of financial innovation.”
In a syndicated column on Christmas Eve, way-out-of-the-mainstream columnist Molly Ivins was not so poker-faced. She called the new law “a little horror.” And in that she stood alone. That was it outside of financial journals like theAmerican Banker and HedgeWorld Daily News, which, of course, were thrilled by the act. That magic word “modernization” in its title evidently froze the collective journalistic brain.
Or in those years consider how the New York Times covered the exotic derivatives called “collateralized debt obligations,” among the principal cards of which the era's entire international financial house was built. These tricky arcana, marketed as little miracles of risk management, multiplied from an estimated $20 billion in 2004 to more than $180 billion by 2007. The Times’s Floyd Norris drily mentioned them in a 2001 front-page business section article about American Express headlined “They Sold the Derivative, but They Didn't Understand It.” He quoted the CEO of Wells Fargo Bank this way: "There are all kinds of transactions going on out there where one party doesn't understand it." From then on, no substantial Timesfront-page business section article so much as mentioned collateralized debt obligations for almost four years.
In 2009, in an enlightening article in the Columbia Journalism Review, Dean Starkman, a former staff writer at the Wall Street Journal, looked at the nine most influential business press outlets from January 1, 2000, through June 30, 2007 -- that is, for the entire period of the housing bubble. A total of 730 articles contained what Starkman judged to be significant warnings that the bubble could burst. That’s 730 out of more than one million articles these journals published.
The formula was simple and straightforward: the business press served the market movers and shakers. It was a reputation-making machine, a publicity apparatus for the industry. In other words, the job of financial reporters in those years was to remain fast asleep as the most flagrantly abusive part of the mortgage industry, subprime mortgages, was integrated into routine banking.
Meanwhile, thanks to that same financial press, a culture of celebrity enveloped the big names of finance: CEOs of major banks, Wall Street investors, operators of hedge funds. They were repeatedly portrayed not just as fabulously successful tycoons doing their best for the society, but as fabulously giving philanthropists, their names engraved into the walls of university buildings, museums, symphony halls, and opera houses. They weren’t just bringers of liquidity to markets, but wise men, too. In an all-enveloping media atmosphere in which the press indulged without a blink, they were held to be not only creators of wealth but moral exemplars. Indeed, the two were essentially interchangeable: they were moral exemplars because they were creators of wealth.