What Watchdog? How the Financial Press Has Failed the American Public

From revelations about this week’s hasty, multibillion-dollar bank settlements to AIG’s brief threat to sue the federal government for its own $128-billion bailout (which the company contends wasn’t as generous as other bailouts), 2013 is already shaping up to be another year of government-backed wins for Wall Street.

As the New York Times’ Gretchen Morgenson wrote, “If you were hoping that things might be different in 2013 — you know, that bankers would be held responsible for bad behavior or that the government might actually assist troubled homeowners — you can forget it. A settlement reportedly in the works with big banks will soon end a review into foreclosure abuses, and it means more of the same: no accountability for financial institutions and little help for borrowers.”

This type of clear condemnation of Wall Street and its lack of accountability remains a rare voice in mainstream media, with few willing to join Morgenson and Rolling Stone’s Matt Taibbi on their crusades against banking abuses.

The lack of outrage or investigation by mainstream media comes in stark contrast to the public response to the settlement announcements. The comments sections of settlement-related articles are bursting with scathing comments--including demands for both criminal prosecution for bankers and more investigative journalism in the U.S. In an LA Times poll, 94 percent of respondents said that this latest settlement agreement lacked appropriate transparency.

So if readers are hungering for more information and outrage, why is the mainstream press so soft on Wall Street? Is it the last three decades' rampant media consolidation, which has put 90 percent of the nation's media in the hands of only six major corporations? (That's down from 50 companies in 1983.) What about the increasing magazine and newspaper ad revenue coming directly from Wall Street? Or perhaps it's even due to a redefinition of what constititues financial journalism?

Pulitzer Prize-winning investigative journalist Dean Starkman, whose 2009 Columbia Journalism Review article “Power Problem” outlined just how badly the financial press failed in the lead-up to 2006, has some ideas.

Laura Gottesdiener: Thanks, Dean, for taking the time to talk. To start simple: In your mind, what’s the role of the press--if it’s doing its job?

Dean Starkman: To me, journalism is particularly important because it is the oxygen of democracy. At its best, it is the main thing that is capable of explaining complex problems to a mass audience.That’s its most critical role--and its most difficult task.

Looking back over the 20th century, the great stories are the ones that pull the curtain back on things that are truly complex, baffling and dangerous problems. I’m thinking particularly of an iconic story that journalists stand up and salute: the Standard Oil series from 1902-1904. This knowledge allowed the public to participate in the question of trusts, and the rest is literally history. The government filed an anti-trust case, and Standard Oil was broken up in 1911. That’s the gold standard, the benchmark for journalism.

LG: So how does this relate to today’s financial press?

DS: The financial system is almost deliberately complex; there’s that famous quote by the head of Morgan Stanley, when he said something along the lines of, “We create things that people don’t understand on purpose.”

To me the business press is put on earth to help the public understand complex problems, and certainly the mortgage frenzy was one of them. And that’s where I have a bone to pick with the financial press.

LG: That’s a nice way of putting it. In your piece you call the lead-up to 2006 a “general system failure” for the media, and wrote that the post-crash reporting gave the “short shrift to the breathtaking corruption that overran the mortgage business.” You also diagnosed the financial press today with Stockholm Syndrome.

So what’s going on?

DS: It’s not fully appreciated that there’s been a big power shift between the big media and the institutions that it covers in the last 20 years. When you think of the 1990s, finance was a really powerful industry, but so was media. In the mid-1990s, Dow Jones, which publishes the Wall Street Journal, was almost the same size of Morgan Stanley. Now Morgan Stanley is literally 30 times larger than the New York Times company.

This power shift is almost an intangible thing, but you cannot discount it as part of the story of the rising sense of empowerment and entitlement on Wall Street and an increasing sense of deference from the business press. Also, you can’t deny that the collapse of financial regulation in the early Bush administration plays a role. The press relies, not to a fully appreciated degree, on a financial regulatory system because that generates a lot of paperwork.

LG: Still, sometimes it feels like mainstream media doesn’t only fail to investigate Wall Street’s crimes--they actually helped facilitate them. Is the business press itself an accomplice?

DS: The biggest problem during this period was this narrowing definition of what constitutes a business story. There are fights over what journalism is, and you can divide journalism into two great competing schools. One is the access school, and the other is the accountability school.

In the lead-up to 2006, the accountability school was increasingly marginalized and in retreat, while the access school--doing the profile and getting the scoop on deals--became much more prominent. And so the big missed story--the accountability story--was the radicalization of the financial system, particularly in mortgage lending and discussions of subprime and predatory lending.

Meanwhile, when I went back and reread some of the coverage by really good reporters from really good magazines, the coverage of Wall Street, even if it was well intended, actually helped to exacerbate the crisis and add flames to the frenzy. Things like positive profiles of Wall Street executives made things worse and made the world worse. Unwittingly maybe, but so what?


LG: That reminds me of Vanity Fair’s glowing profile of Jamie Dimon recently.

So what about today? Even now that the radicalization of Wall Street is obvious, it still seems like mainstream media oscillates between blaming borrowers and banks.

DS: In another debate between schools of journalism, right now it’s a jump ball between the structuralists and the behavioralists. In the case of the mortgage crisis, behavioralists argue that people lost their ability to understand and manage debt, while structuralists believe that people don’t change, that markets change--and that the market changed.

Of course, structuralists are right and behavioralists really don’t have a leg to stand on. The structuralists aren’t only right, all the evidence is on their side.

But the cultural argument of behavioralists still has a lot of saliency, and for lazy reporters it’s easy because all you have to do is make the assertion about human nature, and that’s the end of the discussion.

LG: So, what’s the effect of having the behavioral-based articles in mass media?

DS: What it really does is that it shifts the gaze entirely off the institutions that these papers are supposed to be covering and onto an amorphous public that can’t fight back. Put it this way: If you blame Goldman Sachs, you will hear from Goldman Sachs. But if you blame the public, no one is going to call you. No one is there to stick up for the borrowers.

LG: It’s well documented now that minorities were widely discriminated against by the mortgage industry, and continue to be abused by banks’ failures to upkeep real estate-owned property, just to name one current problem. But if mainstream media articles are using the behavioralist theory, how does this type of blame get allocated?

The behavioralists theory does align with racist attitudes. For example: the mortgage crisis was one of these huge generational setbacks for the black community, and that’s one of those things that was essentially dropped by the press. It’s very poorly understood and documented, and it’s one of the most under-covered aspects of this story.

LG: I understand you’re working on a new book that’s going to take the financial press to task. Can you give us a sneak preview?

DS: Sure. It’s called The Watchdog That Didn’t Bark, and it’s forthcoming from Columbia University Press. The book is going to be an argument for watchdog journalism and accountability reporting.

There’s a long tradition of accountability reporting in American business media, and I hope this book will be a revelation to people who think the financial press only reports on investor news, because it’s actually done things that are quite radical in the past. Starting in the early 20th century, we had an emerging business press covering the market, but it had a completely different gaze. It used this form to expose the monopolies and to set the country on the road to reform.

So, I’ll be talking about that particular line of journalism, the origins of business news and the things that impair business news today. In the past the financial press has taken on quite a robust watchdog function.

LG: Last question: It doesn’t seem like financial reporting today is all that much better than it was in the lead-up to the crisis. But what about the future?

DS: There’s no reason to think it’s going to get dramatically worse from here. What we went through was crazy. It was a near-death experience.