How Our Gutless Media Helped Trigger the Credit Crisis

By Trudy Lieberman, Columbia Journalism Review. Posted November 20, 2008.

The press was key to their success. The economic malfeasance that Nader's Raiders attacked was often invisible, and they knew they needed the mirror of the press to show how the public was being victimized. Nader framed issues as a struggle between the little guy and the big corporations, and to many good reporters of that era, protecting the little guy was what journalism was all about. So there was a certain harmony. "Ralph used to say, 'If I don't see you in the media, you guys don't exist. I want to read about you,' " says Mark Green, one of the original Raiders and later the consumer affairs commissioner for New York City. Doing his job without the press, Green told me, "would be like playing tennis without a ball."

If Nader was a genius at using the media, staff members on Capitol Hill were just as clever. And crusading politicians were sometimes allies with crusading journalists in what they saw as protecting the public. Michael Pertschuk, the former Federal Trade Commission chairman, recalls that when he was a young staffer in the mid-1960s, his boss, Senator Warren Magnuson, of Washington State, summoned him to his office one day and ordered him to tell syndicated columnist Drew Pearson what went on during a bipartisan executive session in which Republicans had been trying to gut the Fair Packaging and Labeling Act. Soon afterward, Pearson published a story revealing what Republicans were up to. Then Magnuson confronted his staff. Did any of you leak this to the press? he wanted to know. No one raised a hand, including Pertschuk. "There was an unwritten convention that as a staffer I could speak freely and leak freely and be protected by journalists," Pertschuk said.

One journalist Pertschuk spoke freely to was Washington Post reporter Morton Mintz. Mintz's reporting on corporate misdeeds and the unequal power between business and consumers in the marketplace and the governmental process was legendary, and inspired a generation of young journalists whom Mark Green later called "local Morton Mintzes." They worked for newspapers in Louisville, Detroit, Philadelphia, Cleveland, St. Petersburg, Albany, and elsewhere, writing about local consumer deceptions and questionable practices. They fingered local businesses and sometimes irritated the holy trinity of newspaper advertisers -- car dealers, supermarkets, and banks. They critiqued state regulators and pushed for new laws to stop marketplace abuse.

I was one of those reporters at the Detroit Free Press, and consumer credit was my beat. The new laws that tried to balance the scales between lender and borrower -- the Truth-in-Lending Act, the Fair Credit Reporting Act, the Fair Credit Billing Act -- offered fertile ground for stories. We put ourselves in the shoes of consumers -- shopping for credit cards, auto loans, or refrigerators bought on time, comparing disclosure statements to see if apples-to-apples comparisons were really possible and singling out lenders who didn't follow the rules. One of my investigations in the early 1970s showed that nineteen out of twenty Detroit auto dealers were not quoting annual percentage rates (aprs) for car loans. Banks weren't doing much better. The story headline, "Auto Loan Rate Quotes Remain Deceiving Despite U.S. Orders, was as hard-hitting as the story itself. Later a federal commission on consumer credit cited the piece as evidence better enforcement was needed.

Local consumer reporters didn't stop with credit shopping; they exposed other credit abuses, like the holder in due course doctrine, which effectively required consumers to pay for faulty or undelivered merchandise bought on credit. At the Free Press, editorial writers Joe Stroud and Louis Cook crusaded in support of the paper's news stories and pushed the Michigan legislature to end the practice, which it did over strong objections from the state's auto dealers. Consumer groups saw the editorial page as an ally. "They weren't in our pockets, but once we were in agreement, we could cooperate strategically," said Joe Tuchinsky, who ran the 100,000-member Michigan Citizens Lobby during the 1980s. The combination of editorials and news stories that zoomed in on the systemic causes of a problem showed how journalism could bring about social change, a notion that seems somewhat quaint today.

By 1981, however, the political weather was changing, and that was reflected in both policy and the press. For one thing, regulators began doing the unthinkable: instead of clamping down on questionable credit practices, they began to advocate and encourage them. By the time the comptroller of the currency allowed national banks to originate adjustable- rate mortgages without limits on how much the rate could rise or fall over the life of the loan, a new era had begun. Banks could also raise interest rates without increasing a borrower's monthly payments enough to cover the higher interest costs -- and instead add interest charges to the outstanding balance. So the unsuspecting borrower's payoff amount actually grew.

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